Life Insurance Beneficiary: Everything You Need to Know

Aug 23, 2022 | Life Insurance | 0 comments

As of 2022, the size of the life insurance and annuities market in the U.S. stands at $995.4 billion. Research shows this industry will increase by 5% by the end of the year.

A life insurance beneficiary is a person or people that receive money from your life insurance policy after your death. In your life insurance contract, you must state the beneficiary’s name.

Besides, only the person indicated in your final expense insurance contract can claim your death benefits.

Are you interested to know more about a life insurance beneficiary? Read on to discover everything you need to know about life insurance beneficiaries.

How to Choose a Life Insurance Beneficiary

Any person can be your life insurance beneficiary. You can also name more than one individual as your burial insurance beneficiary.

Choosing anyone who relies on you financially and might need your help when you’re gone is advisable. In most cases, clients choose their spouse or other members of their families.

If you name a minor as your life insurance beneficiary, a court might need to intervene after you die. Since the minor can’t receive the death benefits directly, the funds will go to the minor’s official guardian.

If there’s no designated guardian, the court will have to assign one person that responsibility.

Do Beneficiaries Pay Taxes on the Death Benefits?

Usually, life insurance beneficiaries won’t pay taxes on the life insurance funds. Besides, your beneficiary won’t have to account for the money while they file their tax returns.

Still, your death payout might get subjected to estate tax. However, this will only happen based on two conditions.

First, when you’ve included your burial insurance for seniors in your estate. The second condition is when your estate surpasses your estate tax freedom set by state or federal law.

Who Can Change the Beneficiary on a Burial Insurance Policy?

Usually, only the policyholder can change the life insurance beneficiary. However, there are a few exceptions to this.

You can seek a power of attorney to change your life insurance beneficiary depending on state law. Ensure that it’s someone you trust.

In the case of a community property estate, your spouse gets considered a co-owner of your life insurance policy. So, your spouse will have the right to your life insurance payout.

In some cases, individuals designate irrevocable beneficiaries in their burial insurance policies. This makes it complicated for you to remove the indicated beneficiary without their approval.

What if You Don’t Choose a Life Insurance Beneficiary?

In case you fail to add a beneficiary to your policy, your life insurance funds become part of your estate. This implies that the court will direct how these benefits get distributed.

So, you lose control over who benefits from your death benefit proceeds. Ensure your burial insurance company has enough information to reach your beneficiary.

Otherwise, your death benefits could end up as unclaimed property in your state.