The Most Important Part of Your Life Insurance Policy

Published FEBRUARY 5, 2015

Preparing for our own death may not be the most fun, but it is important. Since we usually don't know how or when our life will end, it's a good idea to get our personal affairs in order as soon as possible. It turns out there is more to the equation than calculating how much life insurance you need. Some of the seemingly smaller pieces are just as significant - specifically, choosing your beneficiary.

What’s a Beneficiary?

A beneficiary is the person (or the entity) you name that will receive any cash payment or benefits upon your death as outlined in your life insurance policy. You can have more than one beneficiary.

For example: You can specify that a certain percentage goes to one person and the remainder to another. In addition, it is a good idea to have both a primary beneficiary as well as a contingent beneficiary, in case your primary beneficiary predeceases you.

It’s important to be very specific when naming your beneficiary by including the person’s full name and, if possible, their Social Security number.

Why Bother?

Many people forget or ignore the very important step on the assumption that if they don’t name someone, the benefits will just go to the next of kin. But if you don’t name a beneficiary, your insurance proceeds will be doled out according to the beneficiary provision in your policy. This likely means they will pass to your estate and are subject to probate, incurring all of the expenses and delays associated with its settlement. Naming a beneficiary ensures your assets are given to the person you choose. And it makes sure the money is received almost immediately after your death — this can help your surviving family members avoid debt when dealing with the high cost of funeral arrangements.


It’s important to choose wisely when it comes to life insurance beneficiaries – they will be inheriting your benefits. It’s a good idea to think about who will be left with funeral costs and those you would like to provide with support. This will most likely be your legal dependents but could include elderly parents, siblings or friends. Remember, if your beneficiary is underage, you may want to set up a trust and designate a trustee who can receive and hold the proceeds on behalf of the minor. It is also important to consider that when you become legally incompetent, you will not be able to name or change your beneficiary.

Every state has different regulations regarding insurance, beneficiaries and death benefits. If you need further life insurance education, try researching online or speaking to a local financial adviser or estate attorney for clarification. No matter how or when you tackle the necessary project of life insurance, it’s important to be sure you choose beneficiaries carefully.