Policyholder vs. Beneficiary

by Steve Lander
With life insurance, your beneficiary collects when you die.

When you buy insurance there are typically two people that matter. The policyholder buys and owns the policy. The beneficiary gets paid by or benefits from it. While the term "beneficiary" is frequently used in connection with life insurance, the concept applies to other types of insurance as well.

Life Insurance

Buying life insurance usually means you're taking out a policy on yourself. You would be the policyholder and would be responsible for paying for it. The person who receives the money if you die is the beneficiary. It's also possible the policyholder can also be the beneficiary. This happens if your employer takes out life insurance on you and gets paid off when you die.

Choosing Beneficiaries

Typically, you're free to name anyone you want as your life insurance beneficiary. While you might name a loved one, you could also name a friend or charity. You can even set out rules that allow a different person -- called a contingent beneficiary -- to get the benefit if the primary beneficiary isn't able to collect. You can even change your beneficiaries around If you set up your policy to allow it.

Additional Benefits

Your life insurance might not be the only policy that pays off if you die. Some auto insurance policies have provisions that pay additional benefits if you die in your car. When this happens, you will need to name a beneficiary to receive those payments. The same would apply to homeowner's insurance as well.

Sharing the Wealth

Some policies let you name additional people to receive benefits without technically calling them beneficiaries. For instance, if your car is financed your lender or leasing company will probably want to be named on your policy as an insured party. That way they get paid if the car is totaled. Your employer may also want to be named on your auto policy if you drive your car during working hours. This helps to protect them from liability if you get into an accident.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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