Insurance provides important protection to those who want to have peace of mind in their daily lives, whether in living or working. More importantly, it is needed when the concern is for someone we love-beneficiary of the life insurance-and we do not want to leave him or her helpless if, for example, an unexpected death occurs.
So, how does life insurance work? How is the protection provided for the ones you care for? Who may collect from the proceeds of the policy, in other words who are the beneficiaries?
To find out the answers to these questions and learn even more, follow this post.
How does life insurance work?
Life insurance is a contract you enter with an insurance company, whereby it will pay people you indicate as beneficiaries in case of a fatality or an inability to continue with their normal activities. Thus, in case of death or disability, the insurance gives the contracted compensation.
The amount of coverage you wish to insure is agreed upon when you sign the contract and will be a reference for the premium (the price of the insurance you will pay). In addition, other variables increase the risks involved: age, professional activity, lifestyle, existence of illnesses , among others.
All possible situations provided for in the contract that will give rise to compensation are known as claims. In this sense, it is said that there is coverage contracted for such an occurrence. You choose the coverage you want from the options offered by the insurer and provided by your insurance broker .
Once the different coverages desired have been defined in the insurance proposal, the insurer defines the premium to be paid and the contract is signed. You then receive the insurance policy containing all the relevant information and the contracted conditions.
So, if a loss occurs, the insurance company assesses the event and pays the compensation. But, in this case, who are the beneficiaries who will receive the amount stipulated in the policy? Follow along!
Who are the beneficiaries of the insurance?
A life insurance beneficiary is a simple concept, because it is simply the person or people that the insured person indicates to receive the benefit. As such, they are nearly always family members: spouse, children, and parents. Sometimes, however, it can be a friend, a coworker, in short, anyone that the policyholder (insured person) indicates.
In fact, the beneficiary could be the insured person himself in the event of an accident that causes disability and prevents him from working. He himself may be the one to be benefited by the insurance and given compensation. In other words, life insurance may also give compensation even if death is not involved in an accident.
What happens to the insured’s heirs?
It is important to note that the life insurance compensation paid by the insurer should not be confused with an inheritance, which involves wills and natural and designated heirs. In fact, the money originating from the insurance does not even go through probate , going directly to the beneficiary indicated in the policy.
However, heirs can also benefit through insurance compensation under some circumstances that may arise. Thus, an insured may have identified an heir as a beneficiary, and hence, in the event of a claim, the heir will benefit since he or she was named as such.
However, there is another situation in which heirs receive compensation from life insurance: when there is no beneficiary indicated in the policy. The insured person may have chosen not to indicate one, but the indicated beneficiary may also have died before the claim occurred.
In this case, the relevant procedures consist of adopting the criteria of the so-called hereditary vocation. In practical terms, this means that the closest relative is the one indicated to receive the insurance compensation.
To identify the closest relative, there is a natural sequence: first of all, descendants (children and grandchildren), then ascendants (parents and grandparents) and finally, collaterals (brothers and sisters, uncles and cousins). Therefore, in case of a lack of children, grandchildren will be looked for and so on.
Compensation for beneficiary and heir
Consider, for example, a person who takes out life insurance and names his parents as beneficiaries, choosing to split the compensation between the two: 50% for the father and 50% for the mother. But what if the father who is the beneficiary dies before the insured person?
In this case, the mother continues to receive her 50% share. The other share, which would belong to the deceased father, becomes the right of the insured’s children and is divided between them. Thus, the mother would receive 50% as the beneficiary and the children would divide 50% among themselves as heirs.
What should you consider when taking out insurance?
You have already seen that taking out life insurance is an important investment for the peace of mind and security of your family. It must, therefore, be preceded by some care that results in a product truly capable of meeting the needs considered.
To do so, an experience and reliable insurance broker will become your best helper. Your agent is the person who is committed to providing the best available policy on the market, so you can choose an option that works best for both you and your family.
Speaking of which, here are measures that will also make your choices much easier at the time you decide on a company, your best plan and the coverage level you need :
- know the options offered by the market;
- research the offering insurance companies;
- check the insurer’s regularity status with the Superintendence of Private Insurance (SUSEP);
- know exactly what you need (compensation amount, insurance price, additional coverage);
- listen to your insurance broker.
As you can see, naming the beneficiary of life insurance is an important step when the insured wishes to ensure the support and protection that the insurance compensation can offer in the event of a sudden absence or inability to provide resources for the family. The relationship between beneficiaries and heirs must be considered, since in the absence of the former, the system of hereditary vocation may be adopted.