Answered – What Is a Beneficiary?

When it comes to making legal or financial decisions, it is always important to understand the terminology. Mistakes could be made and it could end up costing you in one way or another. One of the terms that you often hear associated with the financial planning process and in choosing a life insurance policy is “beneficiary.” This leads many people to ask, what exactly is a beneficiary and how can you choose one that is appropriate for your needs?

By way of a simple definition, a beneficiary is an individual who is able to profit or otherwise receive an advantage from something. As far as insurance policies are concerned, it’s the individual who would receive the payout if you should happen to lose your life. For those who are associated with the last will and trust or another form of financial planning, the beneficiary is the individual who receives something from the estate.

Now that the simple definition is out-of-the-way, there are some complexities that are also associated with understanding more about the definition of a beneficiary. For example, somebody may be named in a trust or life insurance policy but they might need to meet certain criteria in order to be eligible. For example, they may be a beneficiary in your financial planning but if they are not yet of legal age, they would not receive the money or other assets until they reached that age.

Something else to consider when looking at the term, beneficiary, is the possibility that it may not be a single individual. At times, there may be more than one beneficiary that are included on an insurance policy or in the financial planning process. If that is the case, the assets can either be split equally among the beneficiaries or you can specify the percentage or specific assets that go to one of the beneficiaries that are listed.

There are some benefits to being a beneficiary on a life insurance policy or when receiving assets through a will or through financial planning. In many cases, any assets that you receive are going to be tax-free, although you will have to pay for any interest that may accrue over time, as it would need to be reported on your taxes. These are just some of the factors associated with understanding and choosing a beneficiary. If you have further questions, you should seek the advice of a professional.