Myths and Frequently Asked Questions

Planning After Landing Your New Job

Myth: When my employer hands me a beneficiary designation form for my employer-provided life insurance policy or gives me the link to complete the form online, it is optional and not a priority. 

False. You should fill out your beneficiary designation form as soon as possible. If you die without naming a beneficiary, you do not get to choose who receives your life insurance proceeds; someone else will. Depending on the policy's rules, the money goes either to your estate (which means that your loved ones will face probate, a court-supervised process that is costly, public, and time-consuming) or to your closest living relative, whether or not that is whom you would actually choose. Naming a beneficiary puts that decision in your hands. Do not let someone else decide for you. 

Keep in mind that if your beneficiary is a minor, the insurance company cannot pay them directly. Instead, a court would appoint someone to manage the money for them until the child turns 18 or 21, depending on your state.

Frequently Asked Questions

Question 1: What are my options when asked to name a primary beneficiary for my life insurance policy? 

You have several options when naming a primary beneficiary for your life insurance policy: 

1.    Name one adult. When you die, that individual will receive the life insurance policy's full death benefit as a single payout.

2.    Name multiple adults. You decide what percentage each individual receives (the shares must add up to 100 percent).

3.    Name a trust. A trust is a legal arrangement that holds and manages assets on behalf of the people you want to benefit. When you die, the death benefit is paid to the trust rather than directly to a person. The trust's manager, the trustee, distributes the money according to the instructions in the trust agreement.

4.    Name your estate. When you die, the life insurance policy's death benefit becomes part of your overall estate. The funds are then distributed according to the instructions in your will (or state law if you do not have a will). Keep in mind that money paid to your estate will typically have to go through the probate process before it can be distributed to your heirs, which can delay the payout and subject it to creditors.

Question 2: If my retirement account is meant to fund my retirement, why do I need to name a beneficiary? 

Retirement accounts allow you to set aside money from your wages, often tax-deferred, to fund your retirement. However, many people still have money left in the account when they pass away, and those funds need a new owner. A beneficiary designation lets you choose who that individual is rather than leaving it to default state or plan rules.

Note: Depending on your plan type and your state's rules, you may be required to name your spouse as the primary beneficiary if they survive you. If you want to leave the account to someone else, you may need your spouse's written consent.

A beneficiary designation covers only what is left in the account. If you spend down the balance before you die, your named beneficiary receives nothing. If your primary goal is to leave a specific amount of money to a beneficiary, you should plan a backup source of funds in case you draw down your retirement account during your lifetime.