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Who should benefit from your life-insurance policy?

On Behalf of | Sep 2, 2021 | Estate Planning

If you decide to get life insurance, one of the benefits is that your loved ones can receive a payout after you pass away. Life insurance can be extremely helpful in covering the cost of your funeral as well as with other financial issues following your death.

Deciding who to make a beneficiary of that policy should be a part of your estate planning discussion and long-term care plan. Who you’ll leave your policy to will depend on how you want that money to be spent.

Leaving your life insurance to a beneficiary

When you leave your life insurance to one of your beneficiaries, you’re trusting them with the money and that they’ll do what you encouraged with it. For example, if you intend for your child to receive the money to pay for their schooling, then you’re trusting them to use it in that way.

A better way to get around this and to make sure your money is spent how you would want is to use a trust. Have your life insurance pay out to that trust so that there is no question that your child has to meet certain requirements to obtain the money from the third-party trustee.

You should consider leaving your life insurance to the person who has to cover the costs associated with your death. While the estate will cover many of the costs, your family may need to go through probate before they’ll be able to use that money to cover their financial losses. Leaving life insurance to a loved one taking care of funeral expenses or other losses may help them cover those expenses sooner and then get reimbursed later on.

Anyone can be your beneficiary

You can choose anyone you’d like to be a recipient of your life insurance. It’s a smart idea to set up that beneficiary designation and to go over the decision with the person you’re leaving the money to. That way, they will know what to expect if you pass away and will be aware that they should be looking for a payout from the insurance company.