Bought a New Life Insurance Policy? Make Sure Your Beneficiaries Have This Information

Give your loved ones everything they'll need in the event of your death.

The beginning of a new year is a good time to sit down with your budget, banking information, and all the facets of your financial life. If you don't already have "review life insurance coverage" on your list, it pays to add it. After all, life insurance is essential if you have anyone depending on your income or services you provide (like childcare, if you're a stay-at-home parent).

If your old life insurance plan isn't cutting it anymore (say, because you've recently become a parent, or will be soon, or have started a new business venture and have a business partner depending on you), it's time to check out your options and sign up for a new one. Part of signing up for life insurance is naming a beneficiary (or beneficiaries).

Your beneficiaries are the recipients of the death benefit for your policy. It's important to note that your will doesn't override life insurance beneficiary designations, so it's vitally important that your insurance is set up to benefit the right people. Your insurance company may not find out that you've passed away, and so it'll be up to your beneficiaries to notify the company. Read on for the essential information they'll need before they make that phone call.

Death certificate

First and foremost, your beneficiaries will need a death certificate so they can show the insurer that you've passed on. This isn't something you'll be able to provide for them directly, of course, so it's a good idea to talk to them ahead of time or leave written instructions (or do both, ideally) so they know what to do. The easiest way to get a death certificate will be from the funeral director overseeing your memorial service, if you have one. Otherwise, your loved ones will need to file a request with your county's department of vital statistics.

A copy of your policy

Your loved ones will need to know which insurance company holds your policy, as well as details about the policy itself, so leaving a copy of it for them is necessary. And if you'll be leaving it in a place that may not be so obvious, make sure you tell your beneficiaries where to look. Consider leaving login information to manage the policy online as well.

The policy information will tell your beneficiaries who exactly is named, what they're entitled to, and details on how the policy will be paid out. This is often in the form of a lump sum, but not always; some insurers offer the option for monthly installment payments, or even a retained asset account, which will earn interest and allow beneficiaries to withdraw money. Life insurance payouts themselves are not taxable, but any interest earned on them is.

Your beneficiaries will have to submit a claim form (available from your insurer) to get their payout, and leaving them as much information as possible will make an already difficult time less trying. Remember, the purpose of life insurance is to provide for those who depend on you after your death, so don't make it any harder than it has to be.

Other considerations

If you're going to go to the trouble and cost of setting up a life insurance policy, make sure you're updating it as necessary. If you get divorced, have a child, or have other changes in your life circumstances, review your coverage. And if something changes (like, you cancel a policy with one insurer and get a new one), ensure your beneficiaries know of the changes as well. Life insurance is there to protect them and give you peace of mind, so definitely keep on top of these tasks.