What is a Life Insurance Beneficiary?

A life insurance beneficiary is essentially the person or persons that receive the benefit when the insured dies. For example, if you have a $100,000 life insurance policy, then the person you name as your beneficiary will receive the $100,000 when you die.

If a beneficiary is not named on your policy, then the money is paid to your estate. The money will be distributed according to how the rest of the estate is to be divided according to your will.

You will usually name your beneficiary on your application for life insurance. You can change it in the future by contacting your life insurance company or your life insurance agent. You also have the option of naming more than one beneficiary and can even give each beneficiary a specified percentage of the benefit. For instance you could leave 20% to each of 4 children and 5% to each of 4 grandchildren.

There are several benefits to naming your beneficiaries in your policy versus just leaving the policy to your estate:

1) Speed. In most instances, life insurance companies will pay the life insurance to the beneficiaries as soon as a claim is filed. Often times estate situations can take a while to resolve if there is a lot of property involved or disputes involving the estate.

2) Taxes. Life insurance benefits are usually paid to the individual beneficiaries without any taxes being owed by the beneficiaries. In some situations estate taxes are paid based on the size of the total estate before those benefits are paid out to those named in the will. Life insurance would just add to the estate and require more estate taxes to be paid.

3) Debts. If the insured dies with outstanding debts, then their life insurance beneficiaries receive the benefits and creditors do not have access to the money. If the money is left to an estate, then often times creditors and bill collectors will need to be paid before the estate is paid out to those named in the will.

As always, I recommend that you seek the advice of a trusted tax professional on issues involving income taxes and an estate attorney on issues involving wills. Please see my disclaimer at the bottom of the page for more information.

Can I Buy Life Insurance for Someone Else?

Can I buy life insurance for someone else? Or here is the one that really scares people. Can someone else buy life insurance on me and then collect the money if I die? I hear people asking these questions all the time and wanted to address both issues.

Can I buy life insurance for someone else?

The simple answer is, "yes". You are allowed to pay the premiums and collect the benefits on a life insurance policy that insures a life that is not your own. For example, many people have life insurance on their children. Another example is that companies sometimes buy life insurance on their key employees so that they can recover from the negative financial effect that losing that employee might cause.

There are two things that you need to consider. One, you are going to need to have the consent and participation of the person whose life is being insured. Two, you are going to need to provide a reason to the insurance company that you will be affected financially if the insured dies. The only exception to this is life insurance on children. Usually the parent of a minor can purchase life insurance on the child without any additional reasons. If you have nothing to lose from the death of the person, then you don't really have an "insurable interest" and really only will gain from the death of the insured. Just being a relative does not necessarily create an insurable interest. You will have to prove that you are somehow financially affected by the death of that particular relative.

Can someone else buy life insurance on me and then collect the money if I die?

As you can tell from my comments in the previous paragraph it is going to be very difficult for someone to buy life insurance on you without you knowing about it. First of all they are going to need your consent and participation. Most life insurance policies require medical tests on the insured and I think you'll notice the person coming over to your house to take your blood and to strap the EKG on your chest.

If a person purchases some kind of simplified issue or guaranteed issue policy without you knowing about it, then they are committing insurance fraud, which is a felony and would cause the policy to be voided.

Also if the person can't prove insurable interest the insurance company is not going to let them buy the policy. The company will let anybody willing to give them the money pay the premiums, but the company is going to need to know that the person who is named the beneficiary of the policy has the insurable interest. Now if you originally purchase a policy you can usually transfer the ownership of the policy or change the beneficiary to whoever you want, but you will have to prove that the initial beneficiary has insurable interest.

How do I Decide What Life Insurance Company to Buy From? (Part 3 - Customer Service)

Just buy your life insurance from Garden State Life Insurance of course. End of article.

Just kidding.

I realize this is a weird article coming from a blog sponsored by a life insurance company, but try and hear me out. This is part three in a series of articles that has a few points to consider when reviewing your options whether you are interested in buying insurance from Garden State Life or not.

I have bad news and good news on the topic of finding a company with good customer service and one that will treat you fairly. The bad news is that unlike consumer products it is really difficult to find reliable third party reviews of customer service experiences with life insurance. I love it that when I'm shopping for a new electronic gadget, I can easily go to Amazon.com or Cnet.com and get an indepth product description, pictures and reviews of the products and companies that make the products. Unfortunately, I have not come across a life insurance company equivalent. Let me know if you have a good source and I'll link to it or write about it.

Since there is not really an unbiased location that I'm aware of for life insurance company reviews, I would recommend running a query on the company name in one of the major search engines (e.g. Google or Yahoo). If you run just a regular web query, you can see not only the company's website, but you may also run across articles that may have been written about the company or other information that you might find useful. I would also recommend running a query in the "News" search section of either Google or Yahoo to see if you can find any recent news involving the company.

The good news is that life insurance companies and agents are highly regulated by state governments so they are all forced to deal fairly with both prospective and current policyholders. This does not mean that all insurance companies are equal in how they treat their customers, but you can be assured that if you choose a life insurance company that has good financial ratings and has been in business for a while, then you will be treated fairly.

How do I Decide What Life Insurance Company to Buy From? (Part 1 - Ratings)
How do I Decide What Life Insurance Company to Buy From? (Part 2 - Price)

Garden State Life Video Contest Video of the Week #3

Garden State Life's first video contest has only a few more weeks to go and the votes are starting to really pile up. A big thanks goes out to all of you who have already entered a video or registered to vote. Good luck to all the contestants. There's still time to get a video uploaded to enter the contest so bust out those cameras this weekend.

Here is a link to my favorite video this past week:

http://memelabs.com/gardenstate/index.php?play=2313

Great video, Garden State Zack. I loved the background scenery. Maybe he should make the name change official.

Past weeks:
Week #2 Video of the Week
Week #1 Video of the Week

How do I Decide What Life Insurance Company to Buy From? (Part 2 - Price)

Just buy your life insurance from Garden State Life Insurance of course. End of article.

Just kidding.

I realize this is a weird article coming from a blog sponsored by a life insurance company, but try and hear me out. This is part two in a series of articles that has a few points to consider when reviewing your options whether you are interested in buying insurance from Garden State Life or not.

Price

While price may be the most important or only factor for most people, I purposefully did not talk about price in part one of this series. I wanted you consider other factors before you tune me out. Just because a company is offering the cheapest product you can find there are other factors to consider.

For the most part, this is going to come down to how much work you want to put into finding the lowest price. There is not a source or company that is always going to provide the lowest price for everyone. For example, some companies have more favorable rates for people who smoke and some may place more emphasis on a prior medical condition you had and charge higher rates. Just because you use a quote website or an agent that can quote multiple companies does not mean that you are getting the best deal. Most agents can only sell products for the companies that they have licenses to represent so you may have to talk to multiple agents or visit multiple sites before you find the best deal.

Also, when you are comparing rate quotes you need to make sure that you will actually qualify for the product. Many quote services will quote you the super preferred class of rates, but in the end you may only qualify for the standard class based on your personal or health history, which will have much higher rates than what they quoted you originally.

Also, be sure to only compare prices between similar products. A whole life product or a simplified issue product may have a higher price than a fully underwritten term life insurance product, but they both offer additional features for that price in return (e.g. whole life insurance has cash value and simplified issue life insurance is more convenient and does not require a medical exam.) Find the type of life insurance product with the features that you want and then search for the company that has that product at the price you want to pay.

How do I Decide What Life Insurance Company to Buy From? (Part 1 - Ratings)

Garden State Life Video Contest Video of the Week #2

Garden State Life's first video contest has about one month to go and the best video of the week is getting harder and harder to choose. A big thanks goes out to all of you who have already entered a video or registered to vote. Good luck.

Here is a link to my favorite video this past week:

http://memelabs.com/gardenstate/index.php?play=2203

The dad and all three kids did a great job!

Past weeks:
Week #1 Video of the Week

How do I Decide What Life Insurance Company to Buy From? (Part 1 - Ratings)

Just buy your life insurance from Garden State Life Insurance of course. End of article.

Just kidding.

I realize this is a weird article coming from a blog sponsored by a life insurance company, but try and hear me out. My next series of articles has a few points to consider when reviewing your options whether you are interested in buying insurance from Garden State Life or not.

Ratings

One thing you definitely want to know about a company before you buy from them is their ratings. Every life insurance company is reviewed on a regular basis by multiple ratings agencies. Their job is to look at the financial strength of the companies and give investors an idea as to whether it would be wise to conduct business with a particular company. This is especially important for one considering the purchase of life insurance, as you may need the company to pay benefits well into the future. You definitely want to know that they are going to be there when you need them. Also, if your life insurance company goes out of business and your health has deteriorated, then you may have to pay a substantially higher premium or may not qualify for life insurance at all. This becomes even more important if you have any type of product with cash value. Unlike banks that have FDIC insured balances, the U.S. government does not guarantee insurance company deposits.

An example of a common ratings agency used for insurance companies is A.M. Best. A.M. Best ratings are similar to the letter grades that you get in school. They go from A++ to F (for more details see http://www.ambest.com/ratings/guide.asp). I would advise that you purchase with a company that has an “A-“ rating or higher. This does not guarantee that the life insurance company will not become insolvent, as even an “A++” company can deteriorate over time, but your life insurance premiums should be about as safe as they can get.

Most life insurance companies with an “A” in their A.M. Best rating publish the rating on their sales materials and use it as a selling feature so you probably will not have to go through too much effort to find the rating of a highly rated company. If the A.M. Best rating does not appear in the sales material, you should be able to get the rating off of the insurance company’s website or from the agent or quote service trying to sell you the policy. You can also look the life insurance company up directly on A.M. Best's website to find their current rating.