Life Insurance Beneficiary

When purchasing life insurance you are required to choose a policy beneficiary.  A beneficiary of a life insurance policy is the one who receives the policy’s distribution is something happens to the insured.  The most common beneficiary chosen is the spouse; however, children, grandchildren, trusts, benefits, churches, and many other entities can also be used as the beneficiary.

I heard a lawyer say the other day that when you take out a life insurance policy as an investment or a policy with a larger face amount that you should examine the tax consequences on the beneficiary.  An example: would the beneficiary receiving the face amount from your 20 year term life insurance policy of $2 million have any tax liability?  If so then you should consider divesting some of the funds into a living trust that would alleviate the tax liability on the beneficiary.

When you set up a trust for a life insurance policy
there are several things to consider:

  • Who will be the trustee and backup trustee?
  • Will there be anything in place that makes sure the beneficiaries of the trust are of a sound mind when they receive the money?
  • If something happens to all the beneficiaries of my trust who would I want my funds to go to?
  • Who do I want to be the guardian of my children?
  • What restrictions do I want on my children for receiving the money?  In example: I want them to have to have a college degree, pass a drug test, have a solid job, etc.

Also it is important to remember that if you are the owner of the policy the policy’s benefits are counted in your estate if the beneficiary is not something outside you or your spouse.  It is recommended that if both a husband and wife get a life insurance policy that the husband be the owner of the wife’s policy and vice a versa.  This prevents any issues that may arise with taxation because of the insured’s estates size. 

Related Articles

senior division manager Article added 08/16/2011 by Ryan Eaton
Senior Division Manager: Morgan White Group

For more info about Term Life Insurance, please feel free to contact me.
Submit basic questions to:

Know someone with Term Life questions? Share our link: