When you take out a life insurance policy or open a retirement account, you will be required to designate beneficiaries to receive the funds upon your death. You may name one or more primary beneficiaries, as well as one or more secondary, or contingent, beneficiaries to receive funds if a primary beneficiary passes away before you or at the same time.
You may choose to leave all the money to your spouse, to divide it among your children, or to leave some or all of it to a trust, a charity, or an institution, such as a hospital or university. Circumstances can change, which is why it’s important to periodically review your beneficiaries.
You May Decide to Change Your Beneficiaries After a Major Life Event
If you take out an insurance policy or open a retirement account while you’re single, you may name a parent, a sibling, or another individual as a beneficiary. If you get married later, you will likely want your spouse to be the beneficiary. If you designate your spouse as a beneficiary and then you get divorced, you may want to name another relative or someone else as the new beneficiary.
You may not have any children when you purchase life insurance or open a retirement account. If that’s the case, you may name your spouse as the sole beneficiary. If you have one or more children later, you may want to divide the funds between your spouse and kids, or you may want to name your children as beneficiaries, in the event that your spouse dies. If you had children when you bought insurance or began saving for retirement and you had more kids later, you may want to add your younger children as beneficiaries and adjust the percentages that will go to each child.
Updating Your Will May Not Be Enough
Many people remember to change their will when they get married or divorced or have kids but don’t contact their insurance company or the company that holds their retirement account to update their beneficiaries. If you die and there is a discrepancy between what your will says and who you originally listed as your beneficiaries, your original designations may override the changes you made to your will. That means that your spouse and children may not receive the funds that you wanted them to collect after your death.
Review Your Beneficiaries on a Regular Basis
Review your beneficiary designations once a year, plus any time you have a significant life-changing event, such as a marriage, divorce, or birth or adoption of a child.