In the basic principles of ordinary life insurance, the insured pays a premium in exchange for a guaranteed death benefit that will go to a beneficiary of the insured’s choosing. While a beneficiary is often thought of as a loved one who may need or make use of that benefit if the insured were to pass away, a beneficiary doesn’t necessarily have to be an individual.
Types of Beneficiaries
When the insured names the beneficiary of their life insurance policy, the beneficiary can be an individual (or individuals), an organization, or a trust.
How do life insurance beneficiary trusts work?
A life insurance beneficiary trust is set up to receive and manage the benefit, or payout, of your life insurance policy for your beneficiary/beneficiaries until they are a certain age. A beneficiary trust is sometimes the route people with minor children take. When the insured establishes a beneficiary trust, a trustee is chosen to manage the benefit.
It’s important to note there are often many legal implications associated with life insurance benefits and minors. If you’re interested in setting up a trust as your beneficiary, you should educate yourself on state law — whether you live in New York or in another state (laws vary by state) — or contact a trusted professional.
Revocable vs. Irrevocable Trust
Two types of life insurance trusts are: revocable and irrevocable. Changes can be made after a revocable trust is created. Changes can’t be made after an irrevocable trust is created.
Speak to a financial advisor if you want to know more about revocable and irrevocable trusts in terms of flexibility, tax implications, etc.
If you have any questions about life insurance beneficiary trusts, contact the New York State Insurance Superintendent/Department of Financial Services or a licensed insurance agent.
Categories: Insurance, Life Insurance