Life Insurance Beneficiary Trust – Understanding Life Insurance Ownership

Life Insurance Beneficiary Trust

The concept of life insurance ownership needs to be understood.

There are several key elements that are vital as far as life insurance beneficiary trust is concerned.

For starters, there are basically three components of these policies; the policy owner, the beneficiary and the life insured. In policies in which the beneficiary and the insured do not have a say, then complete control is given to the policy holder.

This means he or she can change or cancel the policy as he or she deems fit.

Understanding the term Trust

The word trust refers to an obligation which is placed upon a trustee by the creator of the trust. The trustee is the party given the task of managing the trust on behalf of the beneficiaries. The capital and assets that are invested are distributed to the beneficiaries. The manner of distribution is normally stipulated in a document that is referred to as the trust deed. Read more to know several types of trusts that can be established .

Discretionary trust

As the name implies, in this type of trust, the assets are divided among the beneficiaries upon the discretion of the trustee. The trustee is then entrusted with the task of handling the assets and any income that may arise. Discretionary trust is when the trustee has the powers to choose beneficiaries and how much each of them will receive. This type of trust is generally a family trust.

Eligibility of a life insurance beneficiary

Normally, most people nominate either their children or spouse as their life insurance beneficiaries. Applicants have the freedom to choose anyone as their beneficiary. Parents or even family friends can be named. The only requirement is that the persons named be 18 years and above. It is important to clearly state your beneficiary to avoid legal battles and confusion. If you name your children or spouse, once you die, the benefit is paid to your dependents. Most insurance companies will allow up to 5 beneficiaries. Each of the named persons receives a portion of the benefit. It should be noted that the more beneficiaries you have on your policy, the harder it is process claims.

Updating policy beneficiaries

There are circumstances under which the policy holder needs to update policy beneficiaries. Some of these events include:

Death of the named beneficiary

Unexpected deaths can happen, necessitating adjustments on the policy. You need to update the policy in the event that you lose your child or any other person included in your list of beneficiaries.

Birth of a child

The birth of a child will mean you need to make adjustments in your nominated beneficiary. Again, it could also mean that you need to reconsider the sum that you have insured. Read: We Reveal 17 Tips To Lower Your Car Insurance!

Separation or divorce

In most joint policies, the person named is a spouse. In a linked policy, you may not have the option of nominating another beneficiary. In the event of separation or divorce, certain complications may arise, necessitating the need for a policy adjustment. Under such circumstances, joint policy holders can cancel the policy. The other option is to have one person carry on with the policy while the other one applies for a new one. They also can opt to carry on with the policy, provided they remain in good terms even after their separation.