As important as life insurance is, you would hope no to need it for anything in the future, or at least prematurely. A crucial part of the health of your financial plan for your family is having life insurance in the event of unfortunate circumstances. When you apply for and purchase life insurance or are granted a policy with your employer, you will undoubtedly be asked to choose a beneficiary. As simple as this seems, major impacts and implications on your benefit if it is ever needed and used is affected by who you choose.

When choosing a beneficiary, there are different factors to consider, and hopefully discuss with your trust attorney and financial planning experts. Here are some different factors you may want to consider when designating a beneficiary to your life insurance policy.

Relationship: How funds are dispersed and who can be affected by the relationship you have to your beneficiary. This can get sticky with long term relationships that are not legally documented as marriages, when you have a spouse but leave your benefit to someone else, or if the person you are leaving the funds to is not in contact and not easily reachable, then you should check your state laws and include a professional in the planning to curb this. If you are divorced but want funds to go to your children, again, you would need to speak with an attorney who can help you sort this out appropriately.

Age: Check laws that pertain to you and your state when it comes to what age a person can become the recipient of a death benefit or whether a trustee will need to be appointed. For the most part, a minor may not be able to inherit funds directly and may need to wait until they are of legal age. In the meantime, a trustee would need to be appointed to safeguard the funds and allow money to be released for needs. Due to the sensitive nature of this scenario, it would be wise to consult with a professional.

Longevity: You will want to keep up to date on the beneficiary information on your policy and stay flexible with a contingency plan in place if your beneficiary is of advanced age or is ill. You may consider talking to a trust attorney about setting up a scenario where your loved one would be cared for with the money but not responsible for it if the person is not well enough to handle the money. This won’t affect every situation, but handling the money from a policy can be a large and daunting responsibility for someone who is not in the best of capacities to handle it.

Need: When deciding on a beneficiary, you will likely take need into consideration. When leaving your benefit, you can typically split the funds between multiple beneficiaries at different percentages. This can allow you to provide more to someone who may have a greater need but not disregard others altogether. Or you may choose to leave your benefit to an organization or charity that is close to your heart.

Trust: it can be an option to simplify the process of splitting funds when having a trust that the money would go in to (again, there are specific dos and don’ts and you need to check with an attorney for your situation)

Trust: No, this is not a typo. This is a different kind of trust. When considering a beneficiary and you have no dependents that rely on your income for their wellbeing, you will want to be mindful of the trust in the relationship you have. If you are asking that person to use the funds in a specific way, you want to feel confident that they would do so (and again, a trust might help in this circumstance.) Leaving an inheritance is a loving and thoughtful gift you can give to someone (or multiple someone) that you love and care about. Before leaving such a gift, think hard about the people in your life that have shown you the care and trust you would want to be able to reciprocate, not just leaving funds out of expectation or wondering if your legacy would be used as you hope.

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