Beneficiaries and Claims

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Beneficiaries are individuals or entities designated to receive the death benefit from a life insurance policy. They play a crucial role in ensuring that the proceeds are distributed according to the policyholder’s wishes.

Naming Beneficiaries

When purchasing a life insurance policy, you must name one or more beneficiaries. You can designate primary and contingent beneficiaries. The primary beneficiary will receive the death benefit first, and if they are not alive or cannot be located, the contingent beneficiary will receive the proceeds.

Changing Beneficiaries

You can change your beneficiaries at any time by submitting a change of beneficiary form to your insurance company. The form must be signed and notarized.

Filing Claims

When a policyholder passes away, the beneficiaries must file a claim with the insurance company. The claim form typically requires the following information:

  • Policyholder’s name and policy number
  • Beneficiary’s name and contact information
  • Date of death
  • Copy of death certificate

The insurance company will review the claim and make a determination on the amount of the death benefit payable. The proceeds will be distributed to the beneficiaries according to the policy terms.

Estate Planning

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Life insurance plays a crucial role in estate planning by providing a means to mitigate estate taxes and ensuring liquidity for beneficiaries. It offers several benefits that can enhance the effectiveness of an estate plan.

Reducing Estate Taxes

Estate taxes can significantly reduce the value of an estate upon the individual’s passing. Life insurance proceeds can be used to pay these taxes, preserving the value of the estate for beneficiaries. The death benefit from a life insurance policy is generally not included in the taxable estate, reducing the overall tax liability.

Providing Liquidity

Estates often contain assets that are not easily converted into cash, such as real estate or businesses. Life insurance provides immediate liquidity, ensuring that beneficiaries have access to funds to cover expenses like funeral costs, outstanding debts, and estate taxes. This liquidity helps avoid the need to liquidate other assets, which may result in unfavorable market conditions or financial loss.

Examples of Integration into Estate Plans

Life insurance can be integrated into estate plans in various ways:

  • Irrevocable Life Insurance Trust (ILIT): An ILIT removes the death benefit from the estate, providing tax savings and protecting the proceeds from creditors.
  • Spousal Lifetime Access Trust (SLAT): A SLAT allows the insured to transfer assets to a trust that provides income to the spouse while minimizing estate taxes.
  • Charitable Remainder Trust (CRT): A CRT provides a stream of income to the beneficiaries for a set period, after which the remaining assets are donated to charity, reducing estate taxes.
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