Life insurance is one of the best sources of financial security for loved ones left behind after a death. One of the most important details of any Life insurance policy is naming the beneficiary/beneficiaries for the policy. The beneficiary is the person(s) you wish to receive the proceeds from the policy upon your death. Believe it or not, there are some people that purchase their Life insurance policy and neglect to select a beneficiary or never revisit the policy as life changes.
You can save your loved ones a lot of time, money, and trouble by carefully selecting a beneficiary for your Life insurance policy and making sure that information is kept applicable to your present situation. Most people don’t like to have conversations about anything involving death, but a possibly awkward conversation now can save your beneficiary the frustration and time of hunting down the information during what will already be a very difficult time for them.
Here are three things you can do to avoid some of the most common and costly beneficiary mistakes:
1. Do Revisit the Policy. Life is constantly in motion. Sometimes this motion doesn’t affect the relationships a person has, but more often than not it does. If relationship changes have an impact on the beneficiary you’ve selected, then the Life insurance must be updated accordingly. And, we aren’t just talking about obvious deaths, divorces, births, or marriages. For example, if your children were underage when you first obtained your Life insurance policy, then you might have established a guardian or trust. Once the children reach adulthood, it might make better sense to name them directly as beneficiaries. Another example would be if a beneficiary is now elderly or no longer mentally competent. In such cases, it might make better sense to name an alternative beneficiary and make the appropriate provisions in your will to care for the previous beneficiary.
2. Do Be Specific. Being vague in an attempt to avoid a hard decision, conflict, or the need to revisit the policy can result in confusion and legal challenges that can tie up the money or cause the omission of someone you wanted included. You want to be specific when naming a beneficiary. So, use the given name and not generic terms like child, parent, wife, or sibling.
3. Do Be Cautious. Some people name themselves or their estate as the beneficiary. This means that the Life insurance benefit will go directly to their estate. However, naming yourself or your estate can leave the benefit subject to taxation and enable creditors to seize it for unpaid bills. Remember, if you have any questions, concerns, or doubts about your beneficiary designation, then you can always consult your tax advisor or attorney.