Beneficiary - Life Insurance

What Is a Beneficiary in Life Insurance?

<lingo>The beneficiary of a life insurance policy is the individual or group of individuals that receive the payment from the policy at the time of the policyholder’s death. When an individual takes out a life insurance policy, he or she lists the beneficiary of their choosing. The person taking out the policy has the ability to do this. He or she is also responsible for paying the premiums during the policy’s in force period. When a covered individual dies, the policy pays a specific amount to the beneficiary who can then use those funds for any needs he or she decides.</lingo>

Beneficiary Cleary and Briefly Explained

The beneficiary is the individual or group of individuals who receive the funds, called a death payment, from the life insurance policy. The person who takes out the policy, which is usually also the person who is covered, is able to select a beneficiary that he or she desires. This does not have to be the person’s heir. Rather, it can be a company, a charity, a trust fund, or a wide range of other types of scenarios.

<twitter>The beneficiary of a life insurance policy is the individual or group of individuals that receive the payment from the policy at the time of the policyholder’s death.</twitter>

The key here is that when the covered person dies, the beneficiary makes decisions about what to use the life insurance proceeds for. There is no obligation to use the funds in any way. For example,  the funds from the life insurance policy can be used to meet the needs of the individual. They do not have to be used to pay debts of the deceased person. The funds do not go through probate court. They are not a part of the individual’s estate. No one can make a claim towards those funds. In addition, the funds are not taxable, nor do they count towards the estate’s taxable value.

Beneficiaries can be changed by the individual taking out the policy as long as the policy is in place. It is important to keep in mind that life insurance beneficiaries can change only by the policyholder’s desire, and not after that individual cannot make decisions for him or herself. Life insurance policies pay out only if the individual dies while the policy is active.

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