This was originally published on Monday, April 30, 2018, in the Pacific Daily News. Click here to subscribe to the PDN.
No one likes thinking about death, but it is very important to be prepared when it happens. It’s important that you understand your insurance policy and the parameters within that policy.
After you make an informed decision on the type of policy, the next thing you want to consider is who will be your beneficiaries. Selecting a beneficiary is a very personal decision. When choosing a beneficiary, ask yourself a few questions. Who will be bearing the costs of your funeral? Who counts on you financially?
Take time when choosing your beneficiary. When choosing your beneficiaries, there are several points to consider.
Family. For most, this is top priority because they are financially dependent on you. Family members could include your spouse or partner, children, parents or siblings. You can choose multiple family members as your beneficiaries. You can designate branches of a family or lineage and the proceeds are divided equally among the beneficiary and/or their surviving children.
If you named your son and daughter as your beneficiaries, they would receive 50 percent each of the proceeds. If your son passes before you, his children will split his 50 percent equally and your daughter still receives her 50 percent. If your son had two children the proceeds will be divided equally between your son’s children and your daughter.
Legal guardian. If you are appointing a minor or someone who is not mentally or physically able to care for themselves as your beneficiary, you may be required to name a legal guardian.
Estate. You may choose your estate to be your beneficiary instead of a person. You must have your last will and testament drawn and the executor of your will receive the proceeds from your life insurance policy. The executor will have to carry out the terms of your will.
When you name your estate as the beneficiary, it will be the sole beneficiary of your life insurance policy. Talk with your accountant to discuss the taxes associated with your estate becoming your beneficiary. Speak to a lawyer to ensure that your will follows the local laws. If you don’t, your will may end up in probate court and a portion of that estate may go to pay legal and court fees. Also during the probate hearing, creditors have the opportunity to dispute the will to pay off any outstanding debts.
Trust. A trust is a legal agreement that allows a third party, or trustee, to hold assets on behalf of the beneficiary or beneficiaries. You can make the trust your life insurance beneficiary. You can specify the terms of a trust controlling when and to whom distributions may be made. A trust can also protect your estate from your heir’s creditors or from beneficiaries who may not be adept at money management.
Charity. You can name a charity to receive some or all of your proceeds.
Mortgage. You can make your mortgage institution a beneficiary of your life insurance policy. Be very specific about the amount and account number when doing so.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.