The main objective of life insurance is to make sure that the people we care about have what they need in case a misfortune happens to us. The contract establishes an amount of money that we think will be enough to guarantee the financial security of our loved ones. The insurer will always pay this compensation after our death to whoever appears as a beneficiary in the policy. But how do you know who to put? Should they always be our children even if they are minors? Is it mandatory to designate them? Experts from elmejorseguro.com give us these tips for choosing the beneficiary of life insurance.
1.- Avoid the “legal heirs” formula
Choosing the life insurance beneficiary is a very personal and difficult decision that is influenced by several factors, such as the emotional part. It is logical that we want that if something happens to us, the money goes to the people who matter most to us.
But there are other aspects that must also be taken into account, such as what is established by law or taxes.
When signing your life insurance policy, you can establish beneficiaries or not, just as there are people who make a will and people who do not. According to insurance contract lawIf there is no beneficiary, the insurance forms part of the estate of the deceased and is received by the legal heirs.
That is, it can be established with generic formulas, such as “legal heirs”, “children” or “spouse”, without giving names and surnames. In that situation, they will be beneficiaries the people who were related when the contracting party diedNot when you took out the insurance. That is, if you remarried after designating your spouse as the beneficiary, it will be the current couple who will receive the money.
If the formula chosen is “legal heirs”, the beneficiaries will be the children, the parents and the spouse (if any). In this case, the money will become part of the inheritance and will be distributed among them according to the quotas established in the will.
Therefore, it is not necessary to designate a specific name in the policy. You can do it before a notary or include or modify it after formalizing the insurance. It is enough to notify the company in writing or do it directly in the will.
Even so, since thebestlifeseguro.com explain that, in case of doubt, concrete names prevail over generic formulas. That is to say, if in our insurance we have designated a specific person and in the will it appears that the “legal heirs” will receive it, the data of the policy will prevail. For this reason, they always recommend choosing a beneficiary, with a name and surname, when signing the insurance.
2.- Facilitate the procedures to collect
It is another point to take into account in the event of death. If you do not designate a beneficiary in the policy, the heirs who want to collect the insurance must take care of the procedures, first identify the insurer, present the designation of heirs made before a notary, obtain an authorized copy of the will and pay the inheritance tax, because the insurer is not authorized to pay if the payment to the treasury is not justified beforehand.
However, if designate beneficiary of the life insurance consigned in the policy, you do not need this procedure: if you die, the beneficiary will receive payment directly from the insurer as soon as it is identified and will be subject to its subsequent obligations with the treasury.
3.- The policyholder and the beneficiary can be the same
In the event of disability or incapacity due to illness, the beneficiary of the life insurance is also the person who appears as the holder of the right; that is, the insured himself. When the policyholder and the beneficiary coincide, due to a disability, the process is carried out directly with the insurer. The amount is subject to personal income tax in the declaration of the following financial year.
4.- Designate a trusted adult if the children are minors
Many of those who take out life insurance do so thinking about their children, that they lack nothing, that they can continue studying. But what if the children are minors?
The Law 50/1980, of October 8, on Insurance Contracts, indicates that a minor can be designated as a beneficiary of life insurance. However, she cannot collect on that policy if she is not over 18 years of age. This means that if a 42-year-old man dies in a car accident and has left his 15-year-old son as the beneficiary of his insurance, that son will not receive the corresponding money. It will be charged by the person who occupies the capacity of guardian of this minor.
Unfortunately, reality has shown us that an accident can happen at any time in our lives. Therefore, it is better to anticipate all the possible consequences to ensure that our loved ones are always protected. When one of the parents dies, there is no problem if the other survivor is the one who manages the welfare of the children. But what if they both die? What if the parents are separated and our ex’s new partner doesn’t deserve our trust?
It may also happen that judges do not allow life insurance to be collected until the beneficiaries turn 18 years old. So, the funds are paralyzed and the children are left unprotected during the years of waiting. This is the situation that the life insurance holder was just trying to avoid when taking out the policy. So what can be done so that the insured amount reaches the desired beneficiaries on time?
So that these undesirable situations do not occur in the event of the death of the insured, experts advise including a trusted person who is close to the children as a beneficiary. This way you can support them at such a hard time for them and manage that money in the most convenient way, until the minors are legally responsible.
5.- If there are several beneficiaries, indicate how much each one receives
When you do not have children or they are minors, it is usual to put a friend or friends, or non-direct relatives as beneficiary or beneficiaries. But, what happens if we want it to be more than one?
Of course it is possible to designate more than one life insurance beneficiary. Of course, in these cases the experts advise establishing the amount that each benefit would charge, in equal parts or not, as you decide.
You should know that if, when the time comes to receive the compensation, one of the two beneficiaries has died, the other will collect everything, and not the heirs of the deceased beneficiary.
So this recommendation is also appropriate if our beneficiaries are our children and you want to distribute the compensation equally among them or that those who need it most receive more.
6.- Take into account the taxes
The payment of taxes varies greatly depending on the degree of kinship of the beneficiaries with the insured. Life insurance is added to the inheritance. The total money that is inherited is called the “tax base” and the more it is, the more taxes are paid.
Although each Autonomous Community has its own peculiarities, according to the Law 29/1987of Inheritance and Donations Tax:
- Group I: descendants and adoptees under 21 years of age.
- Group II: descendants and adoptees over 21 years of age, spouses, ascendants and adopters.
- Group III: second degree collaterals (brothers) and third degree (nephews and uncles), ascendants and descendants by affinity.
- Group IV: fourth degree collaterals (cousins), more distant degrees and strangers.
The closest relatives have tax advantages, such as reducing the tax base to pay less in the case of family members in groups I and II. In many cases, family members in degrees I and II are exempt from the tax or the amount to be paid is minimal. For this reason, it is important to consult the legislation of our Autonomous Community before choosing the beneficiaries that we put in the insurance so that they have the largest possible amount of compensation left, which is the purpose of contracting the insurance.
You will find all the information about taxes in this article, where we explain that there is equalization between spouse and common-law partner in tax matters, or that heAn ex-partner or partner without a legal relationship will not be able to take advantage of many bonuses and deductions and will assume a very high tax impact because there is no relationship with the insured. It is considered group IV.
7.- Do not link life insurance to the mortgage
The mortgage or loan amortization life insurance, are those that are contracted so that, in the event of disability or death, part or all of the debt is automatically paid. That is, the mortgaged do not get to collect life insurance: the money is kept by the bank, which is the beneficiary.
In the event of the death of one of the spouses, the one who survives will have to pay personal income tax, while it is not computed as a capital gain for the deceased.
As personal income tax is used to tax the income received by a person, the Treasury calculates it based on certain income brackets, which vary depending on the Autonomous Community where you reside:
- From 0 to 12,450 euros: 19%
- From 12,450.01 euros to 20,200 euros: 24%
- Between 20,200.01 euros and 35,200 euros: 30%
- From 35,200.01 euros to 60,000 euros: 37%
- From 60,000.01 euros: 45%
Example: the life insurance has settled the mortgage of 100,000 euros. You do not have to pay 45% in taxes, but a percentage will be paid for each section. That is, 19% for the first 12,450 euros, 24% for the following 7,750… and so on until applying 45% to the 40,000 euros that would be missing from 60,000.01 to 100,000.
Life Insurance experts advise taking out Life Insurance so that the beneficiaries choose what to do with the amount they receive and that may include paying the mortgage, if appropriate. But it must be borne in mind that this is not always the best option, especially if there is little capital left on the loan to pay, or it has a fixed term,
Definitely: we never know what can happen. Life changes us from one minute to the next. Life insurance is not expensive and can give you a lot in return. We trust that these tips for choosing a life insurance beneficiary have been useful to you. Once with this in mind, compare prices and discover how easy it is to live in peace. Another possibility is to talk to an expert insurance broker, and see what is best in each case.
