The payout from a life insurance policy, known as the death benefit, is an income replacement for your loved ones when you die. People usually leave their death benefit to their human dependents, like their children or spouse. But what if you want to ensure the safety and protection of your furry children?
You technically can’t name your pet as your life insurance beneficiary — whoever gets the death benefit needs a bank account to file a claim, which your pet doesn’t have, no matter how smart they are. But there are other ways to make sure your pet would be taken care of if you die.
Learn more about who you should never name as a life insurance beneficiary
Life insurance terms you should know
Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.
Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.
Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.
Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.
Insured: The person who is covered by the insurance policy.
Policy: The legal document that includes the terms and conditions of your life insurance contract.
Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.
Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.
Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.
Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.
Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.
Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.
Why can’t you name your pet as your life insurance beneficiary?
The life insurance death benefit is paid out to the policy’s beneficiary — which you determine when you sign your policy’s papers (but can update at a later time).
Because your pet can’t partake in the necessary processes that are required to accept the death benefit — such as opening a bank account, signing legal documents, or filing a death benefit claim — you won’t be able to list them as the recipient of the life insurance death benefit.
Basically, your policy’s beneficiary needs to be a human or a trust, or a charitable organization managed by a human. But you can list someone to whom you plan on assigning guardianship of your pet as your policy’s beneficiary.
Naming a guardian or caregiver for your pet is an important step to pet ownership. Failing to do so can result in your dog or cat ending up in a shelter or without basic essentials. [1]
How to get financial protection for your pets
Even though you can’t name your pet as your life insurance beneficiary, you can still make sure they’re financially supported if you die.
Naming a caretaker as the life insurance beneficiary
The person on whom you plan to bestow responsibility for your pet can receive the death benefit on the animal’s behalf. Likely, your pet’s caretaker would need funds for food, medicine, veterinary care, and more. You can leave behind instructions for how much of the death benefit you’d like to go toward these expenses.
But what about your other dependents? You might want to cover the expenses of your child’s college tuition alongside your pup’s vet bills. You can name more than one beneficiary and also designate what percentage of the death benefit they’ll get in your policy.
So if you want to set aside 70% of the death benefit for your spouse and children and 30% of the death benefit for the caretaker of your pets, then you can spell this out in your policy so that the money is paid out per your wishes.
It’s important to be absolutely clear about how you’d like the death benefit to be split up in your life insurance policy, otherwise the death benefit will be split evenly amongst your beneficiaries.
Learn more about the different types of death benefits: per capita and per stirpes
Setting up a life insurance trust
With a lump sum death benefit payout, there’s minimal oversight of how the money is spent after it’s dispersed. Another option to ensure your pets actually get the money you’ve intended for them is to set up a trust that the life insurance death benefit pays into.
A trust is a legally binding financial plan for what happens with your money after you die. Like a last will and testament, you can designate how and for what the money can be used.
There are two types of trusts you can choose from.
An irrevocable life insurance trust, which has some tax advantages but can’t be modified
A revocable trust, which can be modified but doesn’t have tax advantages
Setting up a life insurance trust requires a bit of planning. You can’t use your policy to create a new trust, but you can set up a trust before you purchase your policy, and then list the trust as the policy’s beneficiary.
When you’re setting up the trust, you’ll also want to designate a trustee to oversee that the dispersed money is spent according to your wishes. Trusts have the added benefit of financial and legal oversight to ensure that the funds are being spent according to your designations.
Pet trusts
Trusts for your human dependents and non-human dependents can be kept separate by making use of a revocable or irrevocable pet trust, which designates money specifically for the care of your animal.
Similar to a straightforward death benefit payout, you could assign both trusts as the beneficiary and list what percentage of the death benefit should go to each trust. Because your pet won’t be able to accept and use the money themselves, you’ll once again need to establish a caretaker for them.
Every state and the District of Columbia have laws in place regarding pet trusts. You can find details of how trusts work in your state through ASPCA, but most trusts terminate when your pet dies. If you have multiple pets listed under your pet trust, then the trust will terminate once the last remaining pet dies.
You should work with an attorney experienced in pet trust laws when setting up a trust for your pet to ensure that your furry friend is well taken care of.
Nominating a guardian
Whether you’re protecting your pet’s well-being through a life insurance trust or the life insurance death benefit, you’ll need to nominate a guardian to accept the funds and take care of your pet.
This should obviously be someone you trust — but it’s also important that it’s someone willing to take on the job. Make sure to speak to your pet’s prospective guardian before listing them in your life insurance policy or trust.
And remember, life happens. Your life insurance policy allows you to list a primary beneficiary and a contingent beneficiary, meaning the individual who gets the death benefit if the primary beneficiary is no longer alive to do so. Prepare for the unexpected by listing a backup guardian in your life policy or life insurance trust. [2]
Important steps to ensure your pet’s safety
To secure the optimal care of your pet after you die, there are a few other clarifications you’ll need to make in your life insurance policy or trust.
Any identifying methods for your pet, such as a microchip. This helps prevent fraud
Typical care provided to your pet
Inspection protocols for your trustee to ensure your pet’s guardian is using funds in accordance with your wishes
Lay out how much of the funds go toward each expense
Lay out how the caregiver should receive the funds
What should happen with the remaining funds once the pet dies
Burial plans for your pet
While these plans can be laid out in a trust, you’ll want to specify your wishes directly to the pet’s assigned guardian if they’ll receive the funds directly from the life insurance death benefit.
Can you request your pet be euthanized?
Burial plans for your pet are important to clarify in your life insurance policy or trust. And some people are understandably so concerned about their pet’s wellbeing when they’re gone that they’d prefer their pet be euthanized instead of put into another’s care.
However, while you can put such a request in your will, the legal system will rarely allow it, [3] especially if your pet is young and healthy. As hard as it may be to imagine your pet’s life without you, it’s important to find someone you can trust to care for them.
Pet trusts vs. life insurance death benefit
While setting up a pet trust requires a little bit more planning than a simple life insurance death benefit payout, it might be worth the extra work to ensure the proper care of your pet. The life insurance death benefit offers more flexibility in how it can be utilized, while the money from a trust must be used as you specified.
If your pet requires specific veterinary care or a particular type of food, you can be assured that the trust money will go toward that. A trust, whether it’s for pets or not, can be a very important part of an estate plan.
Why you need financial protection for your pets
When you add together food, veterinary bills, and other miscellaneous expenses, having a pet can get pretty expensive. [4] Large dogs can cost upward of $2,000 a year, while smaller pets like a rabbit might be less costly and cost under $1,000 annually. Over the course of a pet’s lifetime, they can cost tens of thousands of dollars, not including emergency expenses.
Here’s where pet insurance comes in
Insurance for your pet is different than naming your pet as your life insurance policy’s beneficiary.
Pet insurance, like health insurance for humans, reimburses you for expenses when something bad and unexpected happens to your animal. It can help you save on vet bills, and you can go to any vet you want. Pet insurance provides peace of mind when it comes to your pet’s health and your budget.
There’s also pet life insurance, which essentially pays out money to the owner if the pet dies. The average family pet doesn’t need life insurance, but there are occasions (for example, show dogs) when a life insurance policy makes sense.
