Naming Beneficiaries on Your Life Insurance Policy
Naming beneficiaries on your life insurance policy is a very important part of the planning process. The last thing you want is for your death benefit to be paid to an unintended beneficiary or to leave someone out that you wanted to include. Taking the time to understand just a few important facts when it comes to naming beneficiaries can go a long way in proper planning. Here are a few important facts you should know when it comes to beneficiary designations.
Don’t Forget to Name Beneficiaries – In most cases if you don’t name a primary beneficiary, then typically the default beneficiary is your probate estate. In some cases, this can result in delayed distributions to your heirs, additional administrative costs and unfavorable income tax treatment.
Name Both Primary and Contingent Beneficiaries – It is good practice to have a contingent beneficiary in the event your primary beneficiary predeceases you. It is also possible that something could happen to you and your spouse together. Not having a backup beneficiary could lead to an expensive and drawn out process that will most likely involve the courts.
Be Detailed – Be specific when naming beneficiaries. List the specific names of your beneficiaries and add their social security numbers if possible. Don’t be vague by simply using “my children” as the designation. This might cause a delay in your children getting distributions and it could lead to other issues if you get remarried and have stepchildren.
Update Beneficiaries for Life Events – This is a no brainer as events such as birth, death, divorce or marriage can impact your current beneficiary designations. Failure to properly update designations could cause major issues at you death.
Coordinate with Your Will and Trusts – A life insurance policy is a contract. The insurance company is going to pay the proceeds to the beneficiary on the policy no matter what your will states. If you make changes to your will and trust, make sure that those changes are reflected in the beneficiary designations in your life insurance policy. Death benefit payouts can be contested but why put your rightful beneficiaries through the hassle of fighting for money that you wanted them to have in the first place.
Avoid Naming a Minor Child Beneficiary – Do you think a life insurance company is going to give a $1,000,000 check to an 8 year old? Life insurance companies will not pay a death benefit to a minor. If you name a minor as beneficiary, the court will appoint a guardian to handle the proceeds until the child is no longer a minor. Consider making arrangements through a legal agreement or trust so that your child is protected if you pass away unexpectedly.
Conclusion – Naming beneficiaries is an important part of the planning process. Your beneficiary designations should also be reviewed whenever you go through a major life event. Failing to properly address your beneficiary designations could lead to issues down the road. You should consider legal documents such as a will or trust as an overall part of your estate plan. It is important to consult with an attorney that specializes in estate planning when you are thinking about creating a will or trust.
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com. You can also visit our website at www.archstoneinsurance.com.
