Many people default to a partner or child when it comes to specifying the beneficiary of a life insurance policy. For those, however, who do not have a life partner or child to declare as the heir to their policy, choosing a beneficiary can become a bit questionable. Deciding who will receive your payout in the event of your death is more than a required field on the application. This is an important decision and one that may need some legal counsel to help you avoid common missteps in planning your policy.

1. Consider the purpose of the policy.

Why are you opting for life insurance coverage? For those who want their family to be able to cover any debt, like a mortgage or vehicles, choosing a close relative is the seemingly best option. You'll want to discuss the choice with the family member and ensure they understand your final wishes. If you have a business you want to continue even after death, leaving the money to a business partner or co-owner is the best option.

2. Understand your options.

Speak with your policy representative or the human resources department with your employer to understand your options when it comes to choosing a beneficiary. It's likely that you can choose two or more people to share the payout or designate the money to the trustee of a trust. You may also leave the financial benefits to an organization, school, or charity.

3. Name a contingent.

If, for whatever reason, your beneficiary refuses the proceeds or perhaps they can't be located upon the timing of your passing, your life insurance company will look to the secondary beneficiary. The contingent will become the recipient of any policy payout.

4. Review your policy annually.

Keep your life insurance policy up to date. If your life circumstances change, you need to update the beneficiary of your policy. For example, you may have been single when you initiated the policy but have since married. Despite your marital status change, if you don't update your policy, the original beneficiary still receives the cash. Make it a point to review and update your information during annual enrollment.

5. Rethink naming a minor as a beneficiary.

Some states may regulate how much a minor child can receive from life insurance payouts. If necessary, the court will appoint a guardian to distribute the funds, but it may call for several court dates and can be a lengthy process. If you want to designate your payout to a minor, establish a trust or designate a trusted adult to manage asset distribution.

Remember that if you don't choose a beneficiary, the life insurance policy payout will be paid to your estate. The court will then decide who benefits from your estate. Each state's laws are different, and if the court is forced to intervene, the cost could eat away at the proceeds. In order to avoid having the state decide who gets your money and assets, designate a beneficiary.