What is a Beneficiary?
Naming a beneficiary is just as important as taking out the policy when talking about life insurance. Life insurance is designed to give your family financial aid should the time arrive that you no longer could. That being said, your insurance company isn’t going to start doling out money to the first member of your family who approaches them. Nor are they going to throw darts at a proverbial dart board of names and give the benefits to someone at random. Just as a will requires a named recipient of goods, so too does a life insurance policy need a named beneficiary to leave the benefits to.
The policy will often require a primary beneficiary and a contingent beneficiary named. The primary will receive all entitled benefits until either the policy runs out, or the primary beneficiary dies. The contingent beneficiary will only receive funds if the primary beneficiary dies before the policy holder. So for example, if John takes out a life insurance plan and lists his wife Kathy as the primary beneficiary and his son Zach as his contingent, the benefits will be given to Kathy upon John's passing. Should Kathy die before John, then the benefits would be directed to Zach instead. This only works if Kathy passes before John though.
Specific individuals don’t have to be named as the beneficiary though. You can name your children as the beneficiaries. You risk complicating the matter, especially if you have biological and adopted children. More specific instructions are better left when these situations occur.
A named beneficiary is the individual that will receive the benefits of your life insurance policy should the worst happen to you. When you leave proper directions for the insurance company, your family will be taken care of immediately, instead of being delayed by long legal proceedings.