How to Choose a Life Insurance Beneficiary

Aug 26, 2021 2 min read

You’ve chosen a life insurance plan, and now it’s time to name a beneficiary. Simple choice, right? Maybe not.

Naming a life insurance beneficiary isn’t always easy, and there’s a lot to consider when planning for how those benefits will be distributed. Not sure where to start? Read on for our advice on choosing a life insurance beneficiary. 

Who Can I Choose as My Life Insurance Beneficiary?

When you set up your life insurance policy, you must name at least one beneficiary — someone who will receive your policy’s death benefits. This can be an individual, trustee, nonprofit, charity or even your estate. You can also choose multiple beneficiaries and decide how the benefit will be divided.

How Do I Choose a Life Insurance Beneficiary?

Consider why you have a life insurance policy in the first place. Is it to replace lost income for your spouse? If so, he or she is most likely the right choice for your life insurance beneficiary. Do you want to make sure the family business carries on after you pass? Name someone you trust. If you have other assets, such as a 401(k) or IRA, to distribute to a beneficiary, factor those into your decision, as well. This is also a great time to review the beneficiaries for your 401(k) and, if needed, name beneficiaries.

After you’ve chosen a primary beneficiary, pick a secondary beneficiary. If your primary choice passes away, can’t be located or refuses the benefits, having a contingent beneficiary means the policy won’t get tied up in court. Make this choice as carefully as you did when choosing your primary recipient.

Who Should You Never Name as a Beneficiary?

Is your top choice on Medicaid or does the person receive Supplemental Security Income? Your life insurance benefit could disqualify them from these federal programs. Take this into account as you’re deciding.

How Are Life Insurance Beneficiaries Divided?

Do you want your life insurance benefit to be divided between your three children? Or do you want it to be distributed by family? When you divide the benefit per capita, or by person, you can select what percentage of your benefit will go to each person: 50% to your son and 50% to your daughter, for example. When you divide the benefit per stirpes, you’re allocating a percentage of the benefit to a particular branch of the family. Per stirpes distribution ensures the death benefit would go to the beneficiary’s heirs if the beneficiary passes before the policy holder.

Do I Need to Share My Decision With the Beneficiaries?

Discussing plans for after your death can be uncomfortable, but don’t let that keep you from notifying the people you’ve named as your primary and secondary life insurance beneficiaries. This can also help you identify any unintended consequences or potential issues with your choices.

How Often Should I Update My Beneficiaries?

Your life insurance contract must be enforced as written, so don’t assume your will can supersede it. If you update one document, be sure to update the other. Ultimately, the beneficiary named in your policy is the one who will receive the benefits. 

And don’t forget to review your will and life insurance policy any time you have a major life change, like divorce, marriage, a significant shift in assets or the birth of a child.

Can I Name a Minor as My Life Insurance Beneficiary?

State laws dictate how much money a child can receive from life insurance benefits. Speak with your insurance agent or lawyer about how these laws work in your state if you’re considering naming a minor as your life insurance beneficiary. You can also set up a trust or designate an adult to distribute the money as you see fit.

Got Questions? We Have Answers

Your local Farm Bureau agent can help you understand your life insurance policy options and choose what’s right for you.

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.