Life insurance beneficiaries - It may seem obvious that once you have determined how much insurance coverage you need, and the life insurance policy that is right for you, picking a beneficiary would be a breeze.
When it comes down to it, however, this decision may prove a difficult one to make. A beneficiary is the person (or persons) you name in your life insurance policy who will receive any death benefits from the policy.
Some companies specify that the choice of a beneficiary should have some stake in your passing. This could be a spouse, child, or other relative. Other insurers are less specific. One's estate can also be named as the beneficiary of a policy. At the time of death, any benefit is split among other assets defined in your will.
One problem with naming your estate as your beneficiary is that proceeds may not be exempt from any creditors who can then lay claim to their portion of the sum. Naming a beneficiary in most cases exempts them from creditors' claims.
Beneficiaries differ. Revocable beneficiaries can be changed whenever you wish while irrevocable beneficiaries cannot be changed without their consent. Changing beneficiaries is as simple as requesting a beneficiary designation form from your insurer, listing the changes you want, signing and dating the form.
There is no legal limit to the number of beneficiaries that can be named. What is important, however, is stating exactly how the proceeds are to be divided among them. Percentages are probably the best way to do this, particularly if one has any interest or dividend adjustments on the policy, which would alter the face value, and subsequently, the final benefit amount.
While the value of the policy changes, the values designated in the percentages allow for distribution of the funds as desired. Naming a minor as a beneficiary requires the appointment of a guardian, or trust, to prevent the probate court from appointing a guardian for you.
It is further important to review one's beneficiaries annually, or when major life events such as marriage, divorce and childbirth occur. In this way, policies are kept updated, and inconvenient surprises avoided.
The author is a Chartered Insurer and works for The Insurance Regulatory Authority of Uganda.
By Flavia Mpagi