If you have multiple beneficiaries, you can explicitly define how youd like the death benefit
distributed in case he or she passes before you do. Select which of the following two methods you prefer:
Per Capita: If your primary beneficiary dies before you do, the remaining beneficiaries will equally divide that share of the proceeds in addition to receiving their own shares either (1) by head or by individual or (2) to share equally when you pass away.
Per Stirpes: If your primary beneficiary dies before you do, that beneficiarys share of the proceeds will pass to that persons heirs rather than to the remaining beneficiaries when you pass away. Its a method of dividing benefits among living members of a class of beneficiaries and the descendants of deceased members. Since you wont be around to clarify, its especially important with this option to ensure that all documents are clear, concise, unambiguous, and error free. If you have a child under the age of 18 and you name him or her as a beneficiary, whoever has physical guardianship will typically have financial guardianship. That may not be what you prefer. Thats why I recommend you consult with an estate planning attorney to document your wishes.
Its also important to consider the unfortunate possibility that you and your primary beneficiary die simultaneously, such as in a car crash, and it cannot be determined who died first. In some states, the proceeds are paid as if the primary beneficiary died first. Therefore, the contingent beneficiary would receive the proceeds. If there were no contingent beneficiary, the proceeds would become part of the insureds estate. Make sure you know the particulars in your given state.
A policy loan can impact your beneficiary as they will receive a reduced death benefit (total gross death benefit less outstanding loans – usual rule of thumb)
Something else to keep in mind is that when applying for a life insurance policy, honesty is the best policy. Dont fib or omit, even though you think you might be able to get a better rate if you do. And heres why (apart from the ethical considerations): It could really come back to bite you and your beneficiary
Its up to you to ensure that your children benefit from your life insurance as you would like by keeping your beneficiary designations up-to-date. Once you pass away, its too late.