When an insurance plan is issued, the policyholder must designate the beneficiary, who is typically the policyholder's spouse or children. However, beneficiaries can also include charities, companies, other family members, or multiple beneficiaries. If the original beneficiary is deceased or does not meet age requirements at the time of the claim, additional procedures may be necessary to name a new beneficiary.

For instance, Rohit selected his wife, Sudha, as the beneficiary when he purchased a 20-year term plan. After Rohit's passing in the 10th year of paying premiums, the insurance company disbursed the benefits to Sudha, the designated beneficiary.