Top tips for choosing the right life insurance beneficiary

Choosing a life insurance beneficiary is a serious undertaking. It might seem like one of those areas where you choose a family member, but this might not be the best decision. Your beneficiary will be receiving the proceeds of your policy upon your death, which means that they need to be responsible and trustworthy.

If you have an affordable life insurance in South Africa, you will need to carefully consider who your beneficiary will be. For those who are not sure how to start making this decision, below is some handy advice to follow to make the process easier and the end result beneficial for everyone.

Keep the purpose of the policy in mind

The reasons why you chose to take out life insurance should drive the decision of who should be your beneficiary. If you want to provide for your family financially after you have gone, then your spouse might be the best choice.

If you do not have a spouse, then your children or siblings are the next best option. If you want your company to continue to thrive after you have gone, then it is a good idea to make your business partner your beneficiary. The person you choose should have a direct correlation to the purpose of your policy, otherwise they might not use it for the reasons you have stipulated. To make choosing a beneficiary easier, always keep the purpose of your policy in mind.

Revocable and irrevocable beneficiaries

Life insurance beneficiaries can be broken down into two different categories: revocable and irrevocable:

• Revocable beneficiaries: If you have named a revocable beneficiary, this means that you can change your beneficiary at any time. You do not need the consent or knowledge of the previous beneficiary, which can make difficult situations much easier to get through.
• Irrevocable beneficiaries: If you have named an irrevocable beneficiary, you may not change the beneficiary without the consent of the previous one.

Legal experts suggest choosing a revocable beneficiary as this means there will be fewer legal issues in the future should you need to change your decision based on unforeseen circumstances.

What are the types of beneficiaries?

With any affordable life insurance in South Africa, there are different types of beneficiaries you can choose from. These include individuals or family members, an estate, a trust, a charity or a business.

• Individual or family: Immediate family members who are financially dependent on you should be at the top of your list of beneficiaries. You can choose a spouse or partner, your children, step-children, parents, brothers and sisters, or any member of the family who you deem responsible.
• Estate: You can choose to leave the proceeds of your policy to an estate. This means that the death benefit will be paid to the executor of your estate to use as they see fit. This will usually be to pay for estate expenses and to help your family financially. Your executor must be named in your last will and testament and approved by the probate court.
• Trusts: You are able to name a trust as your beneficiary. This is a legal entity used for estate planning purposes and, depending on the type of trust you have set up, the proceeds of the policy may or may not be included in your taxable estate. If they are not included, your family will save a significant amount on estate taxes.
• Charity: If you do not have a partner, family member or estate to use as a beneficiary, then you can choose your favourite charity as a beneficiary.
• Business: You can choose to have your business as the beneficiary if you have key person life insurance.

Always have a back-up

On your life insurance policy, the primary beneficiary is the person who you select to receive the benefits upon your death. However, if this person cannot be located, refuses the proceeds or is deceased at the time of your passing, then a secondary beneficiary will become the recipient.

The secondary beneficiary should be just as trustworthy and responsible as the first. You will need to carefully consider who this person should be, just as you did with the first. A secondary beneficiary is essential because, if your primary beneficiary should not be available, it will be difficult for your family to know how to handle your policy, and they may not be granted access to it.

Choose wisely

Choosing a beneficiary might not sound like a difficult decision, but, in actual fact, it is. You have to consider who will be the most capable of handling your policy and whether or not they will handle the finances correctly.

You will need to decide on a revocable or irrevocable beneficiary as well as what type of beneficiary you should choose. Remember to always have a backup in case of unforeseen circumstances.

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