Advertiser Disclosure

How to Choose a Life Insurance Beneficiary

Feb. 27, 2015
Insurance, Life Insurance
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.

Selecting who will receive your life insurance benefit when you die should be easy, right? But even if you have someone in mind, there are a few things to consider before you make that decision.

Look at the reasons you’re buying life insurance in the first place. Maybe you want to protect your dependents financially and replace your income. Maybe you want to cover any costs associated with your death.

Your life insurance company will want you to name at least one primary beneficiary. (You can name multiple primary beneficiaries, such as your children.) You can also name a secondary beneficiary. If your primary beneficiary is already deceased when you pass away, the benefit goes to your secondary beneficiary.

To choose a beneficiary, ask yourself: Who will need the money most when you die? If you’re married, your spouse is an obvious choice. That way, your benefit can replace your income and cover any shared debt or expenses. If you have children together, you should also include enough money to provide for any associated costs, such as child care and college tuition.

But what if your situation is more complex? Here are some other options you have for naming beneficiaries.

You’re married, but you want a different beneficiary

If you are married but you do not want your spouse to be your beneficiary, your spouse still might have legal claim to a portion of the life insurance benefit if you live in a community property state. These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

You’re unmarried without children

If you don’t have any immediate dependents, such as a spouse or children, you might opt for a life insurance policy that covers only burial expenses. In that case, you should appoint a parent, a sibling, another family member or a close friend as a beneficiary to pay for funeral expenses.

You’re single or divorced with minor children

If you’re a single parent, consider the implications of naming minor children as life insurance beneficiaries. They will not be able to directly receive the money until they’re legal adults — age 18 or 21, depending on your state. If your children are minors, establish a life insurance trust and appoint a guardian to administer the money.

What if circumstances change?

You can change your beneficiaries at any time and reassess your choices if your circumstances change. For example, if you divorce and remarry, you might need to change beneficiaries. Simply contact your life insurance company for a change-of-beneficiary form. No matter what, make sure your death benefit ends up in the right hands.

Anna Helhoski is a staff writer covering personal finance for NerdWallet. Follow her on Twitter and on Google+.

Photo via iStock.