How should I name beneficiaries of my life insurance proceeds?

A life insurance application has a place for two classes of beneficiaries. In first place is the primary beneficiary(ies). In second place is the contingent (or secondary) beneficiary(ies).

The contingent beneficiary is only there in case the primary beneficiary has died, but if the primary beneficiary is still around, the contingent beneficiary won't receive anything. If you really want to, you can name a beneficiary in third place in case something happens to the first two classes of beneficiaries. This third level would be called the tertiary beneficiary. It is not used very often, but you sure can use it if you desire. About the only place on most applications where you could write in a tertiary beneficiary would be in the place called "special instructions", otherwise you can always write it on a separate piece of paper, and sign and date the paper and it will become part of the policy.

Good estate planning also takes into account that those people who you named and who depend on you might predecease (die before) you or die along with you, without you having accomplished a renaming of beneficiaries. That is, of course, why you want to name contingent beneficiaries. When it comes to naming contingent beneficiaries, if you have run out of people who depend on you, the next step is to name your life insurance broker as contingent beneficiary -- just kidding! Do not name your life insurance broker as contingent beneficiary! NO, the next step is to consider other family members such as parents, brothers, or sisters who may not depend on you, but for whom you care about, and they in turn have an interest in you.

One designation that you definitely want to avoid is naming your estate as beneficiary. If you die, the life insurance proceeds payable to your beneficiaries are generally not subject to your creditors; but if you put your estate as beneficiary, the proceeds will be subject to your creditors.

One of the main reasons for the life insurance is to provide money for the beneficiary in the most advantageous way possible!

Naming one or more beneficiaries and deciding how much goes to whom is often not given enough thought in situations where some more thought should go into the process. The fault probably lies with the fact that most life insurance agents are not educated in this area. This article on beneficiaries and the ones that follow ("How do I handle multiple beneficiaries? Who gets their share if they die?", and "Should minor children be named as beneficiaries of life insurance proceeds?"), should provide you with some very important information that might be of great help to you as you consider your own new life insurance policy, or reconsider your old policy and how it might be improved.

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How do I handle multiple beneficiaries? Who gets their share if they die?

If you wish to divide the potential life insurance proceeds among two or more beneficiaries of the same class, it is best to give percentages instead of specific dollar amounts, i.e.: Melvin Shackler 50%, Luanna Shackler 50%; instead of: Melvin Shackler $75,000, Luanna Shackler $75,000. One reason for not naming a specific dollar amount would be because there are certain occurrences that can alter the amount of the death benefit. For example, a living benefit payout can do this (see ["Besides cash value are there any benefits I can get out of a life insurance plan while I'm still alive?"]).

Another consideration is that if you are going to divide the potential life insurance proceeds among two or more beneficiaries, what happens if one of them predeceases you or dies along with you? Should his share go to the remaining beneficiaries of the same class, or should it pass down to the contingent beneficiaries; or if he has children, would you want his share to pass on to his children? Wording can be added to your beneficiary designation to take care of these issues according to your desire. What if a beneficiary is involved in an accident with you, and dies a few days after you? What should happen to his share? This too can be accounted for in your beneficiary designation!