When you buy a personal life insurance policy on yourself, your first thought is usually that you will name as beneficiary your spouse, domestic partner or children in equal shares. This is advantageous, since the death benefit will generally be paid tax free. What happens, though, if your beneficiary dies before you do?
This is where contingent beneficiaries come into play. The contingent beneficiary is the person or entity that will receive the death benefit if the primary beneficiary predeceases you. However, what if your contingent beneficiary also predeceases you, and you do not name a new beneficiary? If that happens, the death benefit will go into your estate at your death, and be taxed in probate, even though that’s not how you would have ever planned it. For this reason, it is a good idea to denote a charity to be the final contingent beneficiary.
A charity is the most efficient beneficiary of funds from a life insurance or a qualified retirement plan because the charity does not pay income tax, and there is an unlimited charitable estate tax deduction. That means you can name your church, your local animal shelter, or any other bona fide charity as a beneficiary of any amount of funds from these plans.
For more information about how to most effectively name your beneficiaries, and to review your beneficiary information and other life insurance concerns, call your independent life insurance agent today.