Life Insurance Beneficiary Q & A
Choosing a life insurance beneficiary is one of the most important aspects of putting together a policy, and potentially one of the most confusing. In fact, the topic of beneficiaries raises a host of interesting, and sometimes eyebrow raising, questions from consumers. Here is a list of frequently asked questions on the subject, ranging from the practical to the cinematic, along with some simple, straightforward answers to get you in-the-know.
- Can a Beneficiary Kill Someone and Collect on the Life Insurance? —Whether you’re watching 1944’s Double Indemnity, or 1994’s The Last Seduction, movie and TV plots about disgruntled wives who knock off their husbands (or vice versa) for the life insurance money have been a staple in Hollywood ever since the invention of “talkies.” But is it possible? Only if you don’t get caught. Under U.S. common law you can’t collect on insurance if you “feloniously or intentionally” kill someone, and more than half of the 50 states have specific statutes that prevent murderers from collecting on life insurance benefits tied to their victims. Surprisingly, you can kill yourself and still receive benefits in most states, as long as you’ve carried the policy for at least 2 years and were not contemplating suicide when you took out the policy.
- Who Should You Name as Your Life Insurance Beneficiary? —The answer to this question is an easy one: whoever you want. Spouses, children, parents, siblings, close friends, universities, and charities are all common life insurance beneficiary designees (or choose a combination if you like). The important thing is to clearly state in your policy who is the beneficiary, and how much each recipient will get if you divide the benefits between multiple parties. Naming secondary and tertiary beneficiaries is also important (see below), and if you designate a minor as a beneficiary, be sure to name a trusted custodian to manage the money until the minor reaches legal age, as well.
- What If No Life Insurance Beneficiary Has Been Named? —According to Gerry W. Beyer, the Governor Preston E. Smith Regents Professor of Law at Texas Tech University, a shocking 60% to 75% of the U.S. population dies without a named beneficiary to receive their life insurance benefit. Known as “dying intestate,” this phenomenon is usually the result of the primary beneficiary having passed away, in which case the benefit will revert to the estate of the deceased, and distribution will be determined by your state’s specific intestate succession laws. Not comfortable with the state settling your affairs? Naming secondary and tertiary life insurance beneficiaries is an easy solution.
- Can You Insure Someone Else Without Their Knowledge and Name Yourself the Beneficiary? —In a more devious spin on the scenarios posed in question #1, the wife takes out a policy on her husband without him knowing it, and then knocks him off to collect the benefits. In addition to the obstacles noted above, life insurance policies of any significant value are rarely issued without a medical exam of the insured, making this a tough way to strike it rich. That said, there are exceptions in some states for those who rely on another’s income to survive (insuring an ex-husband who pays child support, for example), and “confidential life insurance” is available for businesses (e.g. – a bank insuring a client who takes out a significant loan, or a movie studio insuring an actor), though these policies usually exempt blood relatives and spouses.
- Will Your Beneficiary Have to Pay Taxes on Your Life Insurance Benefit? —That depends. If you name your estate as beneficiary and your estate amounts to more than $3.5 million, the government can claim up to 45% of the final amount of your estate in taxes. On the other hand, you can name a spouse as a beneficiary and the government can’t take a single penny, even you have a $100 million policy.
On a parting note, the best way to get quality life insurance coverage, and to find answers to all of your pressing life insurance beneficiary questions, is to use an online insurance quote service like NetQuote.com to round up a number of quotes and providers to talk to. Not only will you be able to compare rates, coverages, and services of a handful of providers, but you’ll get the opportunity to ask industry professionals the tough questions about life insurance beneficiaries, and life insurance coverage in general, that are unique to your specific life insurance needs.