What Is a Beneficiary — and Why It Matters

What Is a Beneficiary — and Why It Matters

When you purchase a life insurance policy, you must designate a beneficiary. This is the person, charity, or trust that will receive the benefit of your policy after your death. It's an important step in the process of ensuring that your final wishes are followed.

The considerations for you are...

• Avoid Probate Court
  Naming a beneficiary streamlines the transfer of your asset (the insurance benefit) by going directly to the chosen individual. Although a beneficiary designation overrides a will, you can still stipulate how the funds will be distributed in a will or trust. For example, using the money for college tuition or distributions at certain ages.

• Flexible Allocations
  You can name multiple beneficiaries and specify exactly how much each receives. See, "primary" and "contingent" definitions below.

• Easily Updatable
  Unlike certain legal documents, life changes such as marriage, divorce, or child birth, may prompt an update to your designation. We will review your policy on an annual basis.

The considerations for your beneficiaries are...

• Taxes
  As a designated beneficiary, the cash proceeds of the life insurance policy are TAX FREE. For example, should you not designate someone in your life insurance policy, the proceeds will go into your "estate" and be counted as estate assets that will be subject to a substantial estate tax.

• Creditors
  Assets such as insurance proceeds that are passed outside of a trust may be subject to lawsuits, divorce settlements, or creditors of the beneficiary.

• Special Needs
  Naming a loved one with a disability or special needs as a direct beneficiary can unintentionally disqualify them from receiving government benefits. Similarly, naming someone who struggles with addiction, financial mismanagement, or legal issues directly may not be in their best interest. You may need a Special Needs Trust to preserve their eligibility while still providing financial support.

Definitions

• Primary Beneficiary
  The first in line to inherit the cash benefit of your life insurance policy. If it is a minor child, a guardian or trust will be needed.

• Contingent Beneficiary
  This person steps in if the primary beneficiary can't or won't inherit the cash benefit of your life insurance policy.

With thoughtful beneficiary planning, you can leave a lasting legacy—one that reflects your values, supports the people and causes you care about, and prevents unnecessary delays or expenses for your heirs.

Inspired by Transamerica's "What is a beneficiary? (It’s important)", June 20, 2025