The whole point of life insurance is to provide support for your family in the event of your death. Your life insurance policy is a separate entity and is not covered by wills, falling outside of regular estate rules. Therefore you cannot assume that whoever is listed as an heir in your will receives your life insurance. That is why properly assigning a beneficiary and/or beneficiaries is so important. Designating life insurance beneficiaries should be a straightforward task, however there are potential financial, legal, and tax issues that that can arise if you do not name the beneficiaries accordingly. Here are a few things to consider:
Who Receives Life Insurance Benefits
As mentioned above, listing an heir in your will does not suffice. Only the designated beneficiary on your policy is entitled to the insurance. Hence, if you do not list a beneficiary on your policy…
What Happens When No Beneficiary Is Listed
If you have no will, or the will does not list heirs to the estate, the court may decide who receives your assets. Believe it or not, many people do not have wills established – further complicating the issue. If you’ve made the effort to protect your family by acquiring life insurance, the last thing you want is to have the court making the decision for you. Which leads to the next item…
Make Sure Your Family Knows About Your Policy
If your family is unaware of your life insurance, it may be difficult to track down whether or not you even have a policy. In addition, they may be unsure where to even look to locate the policy or who to contact for pay out. A death in the family is devastating enough, you want to make sure that your loved ones aren’t faced with further hardship trying to determine if there is a policy, who is the beneficiary, etc. It is imperative that you make your family aware of the policy and where to locate it. Also crucial to remember…
Keep Your Policy Up to Date
Not only is it import to designate the beneficiaries (primary, contingent, etc.) – it is essential that you keep the policy up to date. Don’t forget about your life insurance policy when it comes to life events – make sure you amend the policy to reflect any changes in beneficiaries due to divorce, estrangement, death, new addition(s) to family, etc. Also keep in mind that you need to be specific about how you list the beneficiaries. Avoid generic terms like ‘wife’, ‘spouse’, or ‘children’ – use their full name, date of birth, and social security number to identify them and avoid any legal battles.
More on Designating Life Insurance Beneficiaries
Life insurance is one of those things that we tend to purchase and forget about. Given how essential it may be to your family, it is critical to always remember the importance of designating life insurance beneficiaries and keeping that information accurate. The process of designating life insurance beneficiaries can be an easy and uncomplicated one if you simply remember to do so!