Any type of financial product such as Life insurance, IRA’s, 401(k)’s, etc there is a section of that application asking to name a Primary Beneficiary and in most cases a Contingent Beneficiary as well. This ensures that the company knows who to contact to deliver the proceeds when the insured passes away. In the case for Life Insurance this is paramount.
Let’s take a look in to what a beneficiary is. A beneficiary is any person named such a spouse, child and/or institution or organization that has an insurable interest in the proposed insured. Why is that? It could be that the insured doesn’t want to be a burden on the individual or family. Let’s face it and not to sound morbid some beneficiaries definitley have an interest in your well being whether dead or alive. Wherever you are in your life, a properly structured sound financial plan could alleviate the headache within the family especially when it has to do with finances. As it pertains to Life Insurance, there are two types of beneficiaries: A primary and a contingent.
The primary beneficiary is the person(s) who will receive the life insurance proceeds when the insured dies. The primary beneficiary will not receive any proceeds if he or she dies before the insured. A contingent beneficiary or secondary beneficiary will not receive any life insurance proceeds if the primary beneficiary is alive at the time the insured dies. The contingent beneficiary will only receive the life insurance benefits if the primary beneficiary dies before the primary beneficiary and the contingent beneficiary is alive at the time of death of the insured. Now what if both Primary and Contingent pass away prematurely before the insured, then the insurance company will make every effort to contact the next of kin. Whether that be siblings, grandparents and other family members that could be considered.
So as you are completing an application think about who that person will be and know that as long as you are alive you definitley can make the appropriate changes on the policy regarding the named beneficiary.
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