What is a beneficiary?
[social_share]A beneficiary for a life insurance policy is the person, or people, who will benefit if that policy is activated.
The most common beneficiary for a life insurance policy is a spouse. This is because many life insurance policies are purchased to provide for a non-working spouse and school-age children, and the parent covered by the policy is the most financially-responsible family member.
Children are also often named as beneficiaries on life insurance policies. This is usually the case when the children are older, entering university, starting a career, or raising children of their own. It may also be because the spouse has died or the parents have divorced, leaving no one else for the remaining parent to name as beneficiary.
It is possible to change the beneficiary of a life insurance policy at any time, unless the policy is the result of a contractual agreement. For example, some home loans, particularly those with a low deposit, may require a life insurance policy be purchased by the borrower to benefit the lender should the borrower die, thus allowing the loan to go ahead. In such a circumstance, the lender must remain the beneficiary for as long as the contract is in force.
The ability to change the beneficiary means most life insurance policies can be sold on to other investors, and this often happens toward the end of a life insurance policy. The insurance company will simply change the beneficiary to the investor, who continues making the payments.
One surprising beneficiary of a life insurance policy can be the person covered by the policy themselves. There are two main circumstances where this can happen. The first is a life insurance policy that also covers disability or an inability to work. If the policy holder is so afflicted, the life insurance is paid to the person insured, who therefore becomes the beneficiary. Or, if the policy holder has named himself or herself as the beneficiary, the payout increases the person’s estate. This usually happens when the original beneficiary predeceases the policy holder, and in effect means the payout is made to the beneficiaries of the will.
