Beneficiary is derived from the word benefit. So, beneficiary would be any person who benefits or is gaining from something. In financial terminology, it could refer to a person who receives funds from a bank, trust, will, insurance or any other financial entity.
How a beneficiary is recognized?
Well, there are many ways through which beneficiaries can be distinguished in a contract. For example- his/her name is clearly mentioned in the documents as beneficiary or a certain person is termed as beneficiary when he attains a certain age or gets married (in case of a trust/will) or simply when the benefactor dies (in case of a insurance policy). Sometimes a third-party beneficiary may be introduced i.e. someone who is not a party to the contract but will benefit from its provisions.
Banks clearly recognise the person’s name as “Benefiary” in their documents.
Most contracts prefer naming contingent beneficiaries in case primary beneficiaries cannot be found or are dead at the time of availing benefits. In case of no beneficiaries are available, the benefit might be paid to your estate.
It is also advisable to specify how the benefits are distributed or handled in case beneficiaries are not available. For example- if you have to distribute your assets to your two children at the time of your death and after your death, one of them is not available, and then what needs to be done. Either other would get all assets or the heir of the first one would get benefits.
