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Having life insurance is one of the best ways to help protect your loved ones financially. If you have dependents or intentional, long-term financial goals, a life insurance plan could be a great choice. Owning a plan and choosing the right beneficiary are crucial decisions.
Life insurance can help provide extra security for your dependents if your family is reliant on your income. It can also help you map out your financial goals, estate planning, and long-term decisions like creating a trust.1 There are also some potential life insurance beneficiary tax benefits that can impact your decision. Read on to learn what a life insurance beneficiary is, some common types, and who you should choose to be your beneficiaries.
A life insurance beneficiary is the person or entity the policyholder names to receive the death benefit.2 Once the life insurance policyholder passes, the death benefit must be distributed to the beneficiary. You can choose to name one specific person, a trust, or multiple people as contingent beneficiaries on your life insurance policy.3 Some common beneficiaries for life insurance plans are spouses, family members, business colleagues, charities, and a trust.4
There are two main types of life insurance beneficiaries5:
Choosing the right life insurance beneficiary is essential. Policyholders may purchase life insurance to help their spouse cover mortgage payments, pay everyday bills, or fund their children's college education.6
There is no specific rule around naming your spouse as the life insurance beneficiary. However, it’s important to understand that a life insurance policy is a legally binding contract, so we urge you to choose wisely.7
Don’t wait until it’s too late. Help cover yourself and your family with coverage from Aflac.
There are a few life insurance beneficiary rules that must be considered. Most notably, the life insurance plan is a contract between the policyholder and the insurance company. This means that only the policyholder can change the beneficiary on the life insurance policy.1 However, this is a decision that can be made with a spouse.
It can be a good idea to name a secondary beneficiary in case plans change. Spelling their full names correctly is very important when designating a beneficiary. Children under the age of 18 are not able to receive the death benefit directly, so this must be factored into your plan.1 If you go through a major life event, like the loss of a loved one or a divorce, make sure that your life insurance plan is up to date as soon as possible.
If you don’t designate beneficiaries, it will be more difficult for your loved ones to receive the death benefit payout after your passing. The payout will either be paid to your estate or held in probate. If your loved ones try to access these funds, it may take years to do so. Therefore, it’s important to name your beneficiaries when you get a life insurance policy.
There are a few different options to determine how your life insurance policy beneficiary will be paid out. Keep reading to determine which route is best for you.
A lump sum payment allows the death benefit to be paid out in one large sum, rather than in timed installments. This is the most traditional route for most life insurance policies.1
On the other side of the spectrum, the death benefit can be paid to the life insurance policy beneficiary in scheduled installments. This allows the policy owner to select a pre-determined, guaranteed benefit amount to be paid out regularly mimicking a typical stream of income for the beneficiary.1
A retained asset account is a great option if you are looking to write checks against the balance of your death benefit. This works well for beneficiaries of larger plans and prompts the insurance company to act like a bank. In this instance, the beneficiary may still be able to collect the interest on the death benefit.1
Designating life insurance beneficiaries can help ensure your loved ones receive the added financial security they need in case of your passing. If you’ve decided life insurance is right for you, consider Aflac’s term and whole life insurance policies. Our plans come with reasonable premiums and extensive coverage, and can help make a big difference in the lives of your loved ones in the event of a loss. You can also take the coverage with you wherever you go, even if you change jobs or retire in a new city. Start chatting with an agent to learn more about our policies and get a quote today.
1 Investopedia. How Does Life Insurance Work? Updated April 29, 2023. Accessed February 15, 2024. https://www.investopedia.com/articles/personal-finance/121914/life-insurance-policies-how-payouts-work.asp.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
This is a brief product overview only. Coverage may not be available in all states. Benefits/premium rates may vary based on plan selected. Optional riders may be available at an additional cost. Plans and riders may also contain a waiting period. Refer to the exact plans and riders for benefit details, definitions, limitations and exclusions. For availability and costs, please contact your local Aflac agent/producer.
Life (A68000 Series) - In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. Term and Whole Life (B60000 Series) - In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Group Whole Life (Q60000 Series) - In Arkansas, Delaware & Oregon, Policy Q60100M. In Idaho Policy Q60100MID. In Oklahoma, Policy Q60100MOK. In Texas, Policy Q60100MTX. Group Term Life (Q60000 Series) - In Delaware, Policies Q60200M. In Arkansas, Idaho, Oklahoma, Oregon & Texas, Policies ICC18Q60200M, ICC18Q60300C, ICC18Q60400C.
Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
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