Life insurance is one of the best sources of financial security for loved ones left behind after a death. One of the essential details of any life insurance policy is naming the beneficiary/beneficiaries for the procedure. The beneficiary is the person(s) you wish to receive the proceeds from the policy upon your death. Believe it or not, some people purchase their life insurance policy and neglect to select a beneficiary or revisit it as life changes.
You can save your loved ones time, money, and trouble by selecting a beneficiary for your life insurance policy and ensuring that information applies to your present situation. Most people don’t like to have conversations about anything involving death. Still, a possibly awkward conversation now can save your beneficiary the frustration and time of hunting down the information during what will already be a tough 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 a person’s relationships, but more often than not, it does. If relationship changes impact the beneficiary you’ve selected, the life insurance must be updated accordingly. And we aren’t just talking about apparent deaths, divorces, births, or marriages. For example, you might have established a guardian or trust if your children were underage when you first obtained your life insurance policy. Once the children reach adulthood, it might make better sense to name them directly as beneficiaries. Another example will 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 to avoid a hard decision, conflict, or need to revisit the policy can result in confusion and legal challenges. This can tie up the money or cause the omission of someone you wanted to be included. You want to be specific when naming a beneficiary. So, use the given name, 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, calling yourself or your estate can leave the benefits subject to taxation and enable creditors to seize them. They might take it for unpaid bills. Remember, you should consult your tax adviser or attorney if you have any questions, concerns, or doubts about your beneficiary designation.