Life Insurance Beneficiary Planning
One thing everyone with a life insurance policy or retirement savings account must consider is who will get the money if you were to pass away. This is an important decision that must be considered carefully. In general, beneficiaries from life insurance will receive the death benefit proceeds tax free. An exception to this is if you have the premiums as a tax deduction through work. This is a great opportunity to give loved ones the money they may need to function financially once you are gone. While a spouse is an obvious choice most of the time, there are other beneficiaries to consider if a spouse is not an option.
If a spouse does not have the ability to handle a large amount of money, a trust can be an solid beneficiary alternative. Trustees would be in charge of organizing, managing, and dispersing funds for the surviving spouse. This can be very helpful for a spouse who is going through a tough time emotionally and financially as they deal with a major loss. Most life insurance companies settle claims very quickly, and in states like Texas, insurers are required to start a settlement process within 15 days of receiving a written claim according to the Life Insurance In Depth website. The insurer needs to take no more than 2 months to fully settle a claim in Texas, which is great news if you are shopping around for a Texas life insurance quote. You can count on the process being settled quickly during a very tough time.
If a spouse is not an option for a beneficiary, then there are other important people to consider. According to the article "Beneficiary Planning Essential When Considering Life Insurance Policies" by Scott Webb on ZanesvilleTimesRecorder.com, children and charities can be good options as beneficiaries. The article warns that in the case of divorce, you should be careful if naming a child under 18 as a beneficiary. In many cases, the ex-spouse will handle the money until the child is 18 so you have to have a trusted ex.
Webb gives some top tips to consider when naming a beneficiary on any retirement account or life insurance policy. First, do it as soon as possible. Be sure to have primary and contingent beneficiaries listed. Complete a will so you are not at risk of having your assets disposed. Next, review your beneficiary choice every ten years to ensure it's still your top choice, and update beneficiaries with major life changes such as marriage or divorce. Be sure to consider the ability of the beneficiary to manage the benefit payout. Lastly, educate your children on the benefits of keeping money in a retirement account over a lifetime, rather than cashing it in immediately for quick funds.