The Intelligent Life Blog

You purchase a life insurance policy to protect the financial future of your loved ones. If you die, your beneficiary on the policy will need to make a claim to receive those valuable benefits. While there is a bit of work to do, it shouldn't be overwhelming or stress-inducing. Here is some basic information about claiming your term life insurance payout, the different payout options available, and some other common benefit concerns.

Identify Who Has Been Named the Beneficiary

When you set up your life insurance policy, you named your beneficiary in one of two ways. You either listed a particular person or persons (per capita), or you listed beneficiaries by branch of the family (per stirpes). For example, if you listed per stirpes, the proceeds would still go to grandchildren even if you outlive your adult children.

Traditionally, when a death occurs and a there is a payout under a life insurance policy, it's done as a lump sum payment. Over time, both consumers and financial advisors have expressed concern about this method of payout as not necessarily being in the best interests of the beneficiary. In recent years, there have been changes made to life insurance policies that now give payout options. Here are the different choices that policyholders can make when they purchase a life insurance policy.

Lump Sum Payment

While there are now other options available, the traditional lump sum payment is still a popular choice. In fact, it can be difficult to predict what the future holds for a beneficiary and setting up a lump sum payout gives a spouse or other survivor options. That being said, many today prefer a payout option other than a lump sum.

Obtaining the right insurance policy is difficult enough without thinking about all of the scary and horrific things that can go wrong - none of which have to do with the act of death itself.

After all, if you fail to exercise care in naming the beneficiaries of your policy, all of your hard-earned money and other assets may not be bequeathed to the people or entities that you desire. This could very well leave your loved ones to cope with financial hardships in addition to mourning your passing.

Primary vs. Secondary Beneficiaries

There are two types of beneficiaries in a life insurance policy. A primary beneficiary receives money in the event of your death, while a secondary beneficiary only has a claim to a payout if the primary beneficiary is deceased at the time of the policyholder's death. So if you name a spouse as a primary beneficiary and a nephew as a secondary beneficiary, the nephew isn't legally entitled to a dime if your spouse is alive at the time of your passing.

That's why it's often wise to designate multiple primary and secondary beneficiaries so that you are sure that your death benefits are distributed in accordance with your wishes. The policy should contain not only the beneficiaries' names but also, their social security numbers. Simply listing "my spouse/children/relatives" often necessitates a lengthy investigation by the insurer before any funds are paid out.