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Choosing life insurance beneficiaries? Make these 3 smart moves

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It's critical to correctly choose your life insurance beneficiaries.  Getty Images

The benefits of having a life insurance policy are significant and multiple.

In exchange for a monthly or annual payment to a life insurance provider, your beneficiaries receive a pre-determined sum of money after you die. The amount of money can range from tens of thousands of dollars to $1 million or more.

So it's important to have the right amount of coverage. But it's equally as important to make sure your beneficiaries are properly chosen and added to your policy. There's no real point in setting up a comprehensive policy if you don't have any beneficiaries - or have listed the wrong ones.

If you don't have life insurance - or want to boost the coverage you have - now is a good time to act. Start by getting a free price quote so you know exactly what to expect.

3 tips for choosing life insurance beneficiaries

Here are three smart moves to make when picking (or adjusting) your life insurance beneficiaries.

  1. Go back to the basics
  2. Don't just list one
  3. Be careful when listing minors

Go back to the basics

When you get insured for a significant sum it can be tempting to list a variety of people as beneficiaries - but pause before doing so. Go back to the basics and remember the main reason for initially getting a plan. 

Is this policy primarily to support your children after you have died? Then they should be on top. If you want to leave it to your spouse to make up for lost income in your absence then they should be listed first. Or, if you want the policy to be used to keep a family business going, then adjust the beneficiaries accordingly.

In short: don't lose sight of the primary reason you purchase the protection. List those people as beneficiaries.

Start by getting a free price estimate now.

Don't just list one

When choosing your primary beneficiary, the above advice is applicable. But don't just list one person. Financial advisers generally recommend you list contingent beneficiaries as well. 

What is a contingent beneficiary? This is someone (or multiple people) who will receive the policy payout if the primary beneficiary is unavailable. Primary beneficiaries could be hard to track down, may refuse the funds or could have even died. So, make sure you have someone else to receive those funds. If you have more than one contingent beneficiary that's fine, too. You can allocate policy portions as you see fit (as long as they combine for 100%).

If you want to leave the plan to your spouse, put them as the primary beneficiary. And if you have kids, list them as secondary beneficiaries. But be cautious when listing minors.

Be careful when listing minors

You can list minors on your policy but you should understand the potential ramifications. 

Should you die and your beneficiaries are not of legal age, they will endure a possibly arduous legal process to obtain the funds. Restrictions on how much money minors can access via a life insurance policy vary from state to state so the transfer won't be as clean and simple as it would be with an adult. In some cases, the court may even have to appoint a guardian to administer the funds.

Again, you don't necessarily need to avoid listing minors but understand what may happen if you do. An adult who you trust to administer the funds in your absence may be a safer bet to ensure your minor beneficiaries don't have to fight for the money.

The bottom line

When it comes to life insurance policies and protections, recommendations are specific to your individual personal financial situation, preferences and goals. Keep this in mind as you determine a plan that's valuable to you.

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