A secondary beneficiary is typically named on life insurance policies intended to benefit a future generation in order to avert problems associated with a beneficiary who pre-deceases the policyholder.

The secondary beneficiary is eligible to step into the shoes of the primary beneficiary and if there is no secondary beneficiary, the proceeds will typically be paid to the insured’s estate, which is not always a good thing for the value or the other beneficiaries. Even if you only intend for one person to ultimately receive the benefits of your policy, you should always name a contingency beneficiary just in case.ThinkstockPhotos-179242090

There are several reasons that you would not want the estate for the deceased individual to receive the life insurance proceeds. The proceeds paid to an individual are typically not subject to inheritance tax. However, if they are payable to an estate, then there is inheritance tax. If insurance proceeds are available to an estate, they become available to creditors as well.

You may also not want these proceeds paid to the estate because they will be distributed according to the intestate code if there is no will or according to the will. This means payments may be made in unexpected ways. Talk to your estate planning lawyer in Pasadena about how your estate planning documents in combination with your life insurance policy can help you articulate a clear plan.

 

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