The Importance of Choosing the Right Beneficiary

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How Do Beneficiaries Work?

You work hard to achieve financial success, but have you considered what happens to your assets after you’re gone? Designating a beneficiary ensures your hard-earned money goes to the right place. A beneficiary is a person or entity you choose to receive proceeds from an insurance policy or inherit money or other assets after your death. While beneficiaries are often individuals, you can also name a legal entity, such as a trust or corporation, as your beneficiary.

Understanding Beneficiaries

Beneficiaries are individuals or entities that receive benefits from you after your death. They can be listed in your will, financial accounts, and life insurance policies. After you pass away, your beneficiaries may receive:

• The payout from your life insurance policy
• The assets in your retirement account
• The assets in your brokerage account
• Other assets named in your will

Choosing a beneficiary is crucial for estate planning as it ensures your assets are distributed according to your wishes. Without a named beneficiary, the court will decide who gets the asset through a process known as probate, which can take a long time for your loved ones to receive the money they may need.

Types of Beneficiaries

There are different types of beneficiaries you can designate:

• Primary beneficiary: The first in line to receive the assets or benefits after your death.
• Contingent beneficiary: An alternate who receives the assets if the primary beneficiary has passed away or is otherwise unable to take ownership.
• Multiple beneficiaries: You can choose to split assets or benefits among two or more beneficiaries, specifying the percentage or items each individual will receive.

When choosing a beneficiary, consider your goals for the insurance proceeds or assets. For instance, if you have a life insurance policy to support your family business, the business entity should be the beneficiary. Conversely, if the policy is to help your family manage without your income, your spouse should be the beneficiary.

How to Designate a Beneficiary

The process of naming a beneficiary depends on the specific financial account or insurance policy. Here are some general steps to follow:

1. Gather Information: Collect the necessary details about each financial account or life insurance policy, including the account or policy number and the contact information of the financial institution or insurance company.
2. Review Beneficiary Options: Visit your insurance carrier’s or financial institution’s website or call them to view or get a copy of the beneficiary designation forms. Understand the options available for naming beneficiaries, such as primary, contingent, or multiple beneficiaries.
3. Consider Your Intentions: Determine whom you want to designate as primary and contingent beneficiaries. If naming more than one beneficiary, figure out the percentage each should receive.
4. Complete the Necessary Paperwork: Follow the directions for filling out the beneficiary designation form provided by your financial institution or insurance company. You may have the option to do this online or by filling out a paper form. Include the beneficiary’s full legal name and other required details.
5. Keep Beneficiary Designations up to Date: Regularly review and update your beneficiary designations to reflect any life changes, such as marriage, divorce, having children, or changes to other key relationships.

The Bottom Line

Choosing beneficiaries for your financial accounts, life insurance policies, and other assets ensures your wishes are honored and your loved ones are financially secure after you die. Reviewing your beneficiary designations can be part of an annual financial checkup. For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you secure your financial future.

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