Five Important Facts About Beneficiary Designations

Life insurance is not top of mind for most employees and may be something they only think about during annual benefits enrollment or after a major life event such as a marriage or the birth of a child. However, when it’s time to make benefits decisions, naming a beneficiary of a life insurance policy is just as important as deciding coverage amounts. By designating a beneficiary, an employee is able to direct who will receive the life insurance benefit if he or she passes away. Here are some key facts your employees should know about life insurance beneficiaries.

1. There are different types of beneficiaries.

A primary beneficiary is the individual, organization, trust, or other entity that receives the life insurance proceeds at the time of the insured employee’s death. A contingent, or secondary, beneficiary receives the proceeds if the primary beneficiary passes away before the insured. Naming a contingent beneficiary is important, as the insured may outlive the primary beneficiary, or die at the same time. If a contingent beneficiary is not named, the insurance proceeds are paid to the employee’s estate.

2. An employee can have more than one beneficiary.

An employee can have a number of beneficiaries (primary or contingent). Assigning specific benefit percentages to each beneficiary is recommended. If an employee has more than one beneficiary and does not assign percentages, the benefit payment is shared equally among all named beneficiaries.

3. A minor can be named as a beneficiary, but…

While a minor child can be named as a beneficiary, benefits cannot be released directly to him or her. The insurer will pay benefits to the court-appointed guardian of the child’s estate or property. Parents are not automatically the guardians of a minor’s estate and may need to petition a local probate court where the child lives to be named a guardian. An alternative is to pay the benefit into a custodial account for the benefit of the minor under a state Uniform Gifts to Minors Act or Uniform Transfers to Minors Act.

4. If a beneficiary cannot be located after an employee dies, benefits are still distributed.

If a named beneficiary cannot be located, the insurer will send benefits to the abandoned property division of the appropriate state after they remain unclaimed for a state-dictated period of time, generally three to five years.

5. A power of attorney can change a beneficiary under a group life policy.

An insured can change his or her beneficiary designations at any time. If the insured has a power of attorney (POA), this representative may also be able to name or change the beneficiary if the POA document grants this power and it’s permissible under state law. State law may also allow the representative to designate only certain individuals as beneficiaries.

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