A named beneficiary is an individual or organization that is specifically identified as the beneficiary for some type of asset. A beneficiary of this type may be named to receive the proceeds from a life insurance plan, as the heir in a last will and testament, or even the recipient of proceeds from a pension or retirement plan once the primary owner of the account is deceased. Choosing to go with a named beneficiary often helps to reduce the potential for confusion when it comes to assigning rights to and issuing payouts related to life insurance plans, retirement programs and even annuities.
The decision to utilize a named beneficiary is often recommended for several reasons. The most common has to do with ensuring that the wishes of the covered party are honored after he or she passes away. Since issues may arise from the time the financial account is established and the death of the account holder, being very specific can help avoid challenges to the arrangements and make it easier to disburse funds in the manner originally intended.
With a named beneficiary, there is no room for misinterpretation on who was intended to receive the proceeds from the insurance policy or the retirement benefits of the deceased. For example, if the insured party names his or her spouse or partner as the beneficiary by name, rather than by a more generic designation such as "the spouse," then the funds will be disbursed to the individual so named. In the event that a divorce and remarriage had occurred at some point, there could be a question as to whether the former or current spouse is the rightful beneficiary for the proceeds.
While using a named beneficiary approach provides a number of advantages, there is always the need to review those names from time to time and make sure they remain current. Doing so helps to avoid situations in changes in relationships are not accounted for, possibly leading to loved ones receiving nothing from a will or insurance plan. Parents who name their children as beneficiaries will want to update the details on their accounts to allow for any children born after the documents were first put into place. In like manner, an individual who has gone through a divorce and subsequently remarried will want to update the named beneficiary on an insurance policy or the heir in a last will and testament to the current spouse. Failure to do so could mean that people who are no longer close to the recently deceased party may receive a substantial part of the estate while current loved ones receive relatively little.
