Looking at term life insurance quotes and not sure what they mean about a secondary beneficiary? Donít worry, this article will help! Naming a beneficiary is a big decision, so itís important to have all the information you need.
What is a Beneficiary?
A beneficiary under a term life insurance policy is the person you identify in your policy to whom the death benefit proceeds are payable. Policyholders can name multiple beneficiaries, and the proceeds among them.
Naming a beneficiary ensures that, in the event of your passing, your loved ones will be taken care of. There are multiple advantages to naming a beneficiary. For example, in the event of your death, the beneficiary or beneficiaries you name will receive the proceeds from your term life insurance policy without the benefit having to pass through probate. Your beneficiary will receive the proceeds quickly (within 30 days of proof of death by law) and wonít have to go through extra legal proceedings.
Beneficiaries are also creditor protected, and other parties cannot dispute the life insurance policy in the same way that a will can be contested. That means that the person(s) you decide will receive the proceeds of your policy without having to deal with your creditors or family members that feel they should have received the money.
What is a Secondary Beneficiary?
A secondary beneficiary, or contingent beneficiary, is the person you name who receives the proceeds of your life insurance policy in the event that the primary beneficiary dies. Itís highly recommended that a second beneficiary is named on all life insurance policies to mitigate worst case scenarios. If your primary beneficiary dies before you, the risk of your assets going somewhere or to someone unintended is much higher. By naming a secondary beneficiary, you can reduce this risk.
What are Mistakes People Make When Naming a Beneficiary?
Naming a beneficiary is a big decision, so itís important to know the most common mistakes people make in this area. Here are the top five mistakes people make when naming a beneficiary:
1. Failing to Name a Beneficiary: The biggest mistake people make is forgetting or simply not bothering to name a beneficiary. If you donít name a beneficiary on your investments and life insurance policies, your assets could go through probate upon your death and face tax consequences that could otherwise easily be avoided.
2. Naming minors: Itís highly recommended that instead of naming your minor children as beneficiaries, you set up a trust for them instead. That removes the risk that a judge will decide who manages the money.
3. Failing to recognize tax consequences: Estate tax differs from province to province, so itís critical that you consult with an experienced and professional tax advisor to avoid any unnecessary taxation before you name a beneficiary.
4. Failing to name a secondary beneficiary: If you name only one beneficiary, and this beneficiary dies before you, the distribution of your assets may be decided by a judge. Always name a secondary beneficiary to avoid this risk.
5. Failing to update your beneficiaries: Life changes. Make sure that you remember to update your beneficiaries every time you go through a major life change. For example, if you are divorced, you may not want your ex-spouse to receive your term life insurance proceeds. Remembering to update your beneficiaries means that your proceeds will go to the person you intended.