How to Allocate your Beneficiary.
When you take out a life insurance policy, you’re asked to name at least one beneficiary. A beneficiary is a person or even an organization to which the benefits from your life insurance policy will be sent, once you’ve died. In many cases, people will choose to make their family members their beneficiaries as they either wish to provide them with some amount of financial support after they’re gone or want to leave them with some form of inheritance. But, choosing who it is that will be your policy’s beneficiary is completely up to you and can range from a business partner to a friend or even a charity.
What is allocation?
But what is a beneficiary allocation and why does it matter? Once you’ve named the beneficiaries, you need to decide how much of the policy’s death benefit and cash value will go to whom. Sure, if you’re leaving all of the benefits to one person or group it will be easy to allocate. But, if there are several people involved, you will need to decide whether you want to divvy up your policy according to specific amounts or percentages. If you choose a percentage, you need to ensure that all of the percentages for the various beneficiaries total 100.
So how do you decide who gets what? This is a personal decision and can only be determined by you. First, decide who it is that will be receiving the policy benefits and then determine how it is that those people or groups will likely use the money and how much you think each will need.
What does allocation mean?
When it comes to beneficiary allocation, you will first need to determine who your primary and contingent beneficiaries are. A primary beneficiary is a person or party that you wish to receive your policy’s benefits directly while a contingent beneficiary will only receive some amount of the policy’s benefits if the primary beneficiary or beneficiaries have died. This is something that you will need to decide and record clearly with your insurance provider. For the sake of ease, after you’ve passed away, it’s a good idea to also clearly state who your primary and contingent beneficiaries are in your will.