What is a Beneficiary?
A beneficiary is a person or entity chosen to receive assets or benefits from financial products like life insurance, retirement accounts, trusts, or wills. In the context of life insurance, the beneficiary is the individual or group designated to receive the death benefit when the policyholder passes away. This designation ensures that the policyholder’s intended recipient will receive financial support in the form of a tax-free payout, which can be used for any purpose, such as covering living expenses, paying off debts, or funding education.
Beneficiaries can be primary or contingent. A primary beneficiary is the first in line to receive the benefits, while a contingent beneficiary is only entitled to receive them if the primary beneficiary cannot or chooses not to claim them. Designating both primary and contingent beneficiaries provides clarity and avoids potential legal disputes.
It’s essential for policyholders to keep their beneficiary designations up to date, especially after significant life changes like marriage, divorce, or the birth of a child. Regularly reviewing and updating beneficiaries helps ensure that the intended individuals receive the benefits as planned.
For life insurance policies, multiple beneficiaries can be named, and the benefit amount can be divided among them as specified by the policyholder. This flexibility allows policyholders to provide for several family members or causes that matter to them.