When you’re enrolling in your benefits, you’ll notice the term “beneficiary.” You may be prompted to list your beneficiaries or to update your beneficiaries, but what exactly is a beneficiary and how do you know who to pick for it?
As it relates to insurance, a beneficiary is a person who is eligible to receive the benefits from a coverage plan. This term commonly appears in reference to life insurance and AD&D insurance, describing the person who would receive the claim amount upon maturity of the policy. In other words, if you enroll in life insurance, you will have to designate who you want to be your beneficiary in the case of your passing. It is common for the policy holder to designate their spouse or their child as their beneficiary. When the policy holder passes away, their beneficiary is the person who inherits the payout on their policy.
Types of Beneficiaries
There are two types of beneficiaries: the primary beneficiary and the contingent beneficiary. The primary beneficiary is the first person you want to receive the payout. If your primary beneficiary is deceased, then the contingent beneficiary would be the next in line to receive the benefit from your policy.
- Example: Josh and Madelyn have purchased a life insurance policy and they designate each other as the primary beneficiary. This means if either Josh or Madelyn died, then the surviving spouse would inherit the payout. However, in the event that both Josh and Madelyn become deceased, their child whom they designated as their contingent beneficiary would receive the payout. If Josh and Madelyn have multiple children, they can designate all of their kids as contingent beneficiaries, so the benefit would be split equally among them.
Note: You can split the payout however you like among your beneficiaries, equally or unequally, as long as it adds up to 100% of the payout. It is highly recommended that you designate a beneficiary who is over 18 years of age.