Types of Life Insurance Policies and Benefits
Life insurance policies have provision for you to name your contingent beneficiary. Your contingent or secondary beneficiary is the person(s) to whom the insurance money is paid in the event that your primary beneficiary does not survive you. Such a situation can occur when you and the one you named as your primary beneficiary suffer an accident in which you both lose your lives. Your contingent beneficiary also becomes useful in the case where your beneficiary’s death precedes yours, and you forget or neglect to name a new beneficiary. The contingent beneficiary does not share in the insurance money if your beneficiary is known to be alive.
If you do not name a contingent beneficiary and your primary beneficiary dies before you, the proceeds of your life insurance policy may go to your estate. In that event, the insurance money may be subject to taxes and administrative expenses which would otherwise not be incurred.
Life Insurance Policies – Term vs Whole
The two most common types of life insurance are term and whole. It is also important that the insurance money not go to your estate if the money is to be protected from your creditors. If your life insurance policy is payable to a beneficiary, the money is automatically protected from the claims of your creditors. This condition applies in all states.
Most states also permit you to include in the policy a Spend-Thrift clause which protects your beneficiaries from the claims of their own creditors. This spend-thrift clause prevents your beneficiaries from “assigning, alienating, commuting, or encumbering” the proceeds of your life insurance, when left with the company, to satisfy the claims of their own creditors. The clause, thereby, protects your beneficiaries from loss of funds through their own unfortunate business or financial transactions.
