What is a Beneficiary?

A beneficiary is a person who receives the benefit of a life insurance policy. Someone else (the insured) buys life insurance, then names a beneficiary who they want to receive their death benefit (a lump sum of money paid out by their insurance company) when they die.

What a beneficiary gets

Whenever someone buys life insurance, they get to choose two things: their death benefit and their beneficiary or beneficiaries.

The death benefit is a sum of money (usually, $500,000 to $1 million) that the life insurance company will pay out at the time of the insured’s passing.

The beneficiary is the person or people who get that payout. People usually name one or multiple people as the beneficiary of their life insurance policy. If they don’t name a beneficiary, their death benefit goes to their estate.

Once the beneficiary receives the death benefit, they can use it however they want. If the beneficiary was the insured’s partner, they might use it to keep making mortgage payments or to cover their kids’ tuition, for example. If the beneficiary was a business partner, they can use the money to keep things afloat as they find people to take over the responsibilities of the now-deceased individual.

The death benefit the beneficiary receives isn’t subject to taxes.

Who can be a beneficiary

Most people buy life insurance and name people as the policy’s beneficiary, but that’s not your only option. A beneficiary can be:

  • An individual person
  • Multiple people, with the death benefit distributed per the policy’s agreement (e.g., by percentage)
  • An estate
  • A charity
  • The custodian of a Uniform Transfers to Minors Act (UTMA)-compliant account
  • The trustee of a trust you’ve set up

Those last two options are good choices for any minors you want to receive your death benefit (e.g., your kids). Technically, minors can’t receive a death benefit. But with a trust or an account that falls under the UTMA, you can ensure they get the money you want to leave them.

How beneficiaries get a death benefit

The main triggering event for beneficiaries to receive the death benefit is the insured’s passing. But the life insurance company won’t necessarily track them down and hand them a check.

They will need to file a claim with the life insurance provider. To do so, they will usually need:

  • The insured’s death certificate
  • A copy of the insured’s life insurance policy
  • A completed claim form (this is usually available on the life insurance provider’s website)

If a life insurance policy has multiple beneficiaries, each beneficiary will need to submit a claim.

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