Updated on October 4, 2023
Insurance contract is taken primarily to provide financial security to the insured party or their beneficiaries. The meaning of this term and related details are given here.
What is a Beneficiary in Insurance?
In insurance, a beneficiary is an individual or entity designated to receive the benefits or proceeds from an insurance policy when certain events occur, such as the death of the insured, the maturity of the policy, or the occurrence of a specific event specified in the policy. The beneficiary is typically named by the policyholder or the insured, and their role is pivotal in ensuring that the intended financial benefits of the insurance policy are distributed correctly. Policyholders or insured individuals typically have the authority to designate one or more beneficiaries when purchasing an insurance policy. Beneficiaries can be family members, friends, organizations, or entities, depending on the type of insurance and the policyholder’s preferences. Beneficiaries can typically be changed during the term of the insurance policy. Policyholders can update beneficiary designations if their circumstances change, such as after a marriage, divorce, or the birth of a child.
What is the role of a beneficiary?
Claims Processing – When an insured event occurs, the beneficiary plays a crucial role in the claims process. They are responsible for notifying the insurance company of the event and providing the necessary documentation to initiate the claims settlement.
Receiving Benefits – Once the insurance company processes the claim, the beneficiary receives the financial benefits specified in the policy. The nature of these benefits depends on the type of insurance, such as a death benefit in life insurance or a maturity payout in an endowment policy.
Usage of Benefits – Beneficiaries can use the insurance proceeds for various purposes, such as covering funeral expenses, paying off outstanding debts, maintaining their standard of living, or fulfilling the financial goals set by the insured.
Further understanding beneficiaries
Beneficiaries in insurance serve as recipients of policy benefits under various circumstances. The primary beneficiary is the first to receive benefits, while the contingent beneficiary steps in if the primary beneficiary cannot. In life insurance, the beneficiary receives a tax-free death benefit, offering financial support to the insured’s loved ones. Health insurance beneficiaries include the policyholder, spouse, and dependents. Annuities may designate beneficiaries to receive payments, and Accidental Death and Dismemberment (AD&D) insurance provides benefits in case of accidental death or specified injuries.