Investing in life insurance is a foundational part of estate planning, and when done right it’s a primary way to say “I love you” to your loved ones after you are gone. However, when naming your policy’s beneficiaries, several mistakes can lead to potentially dire consequences for the people you’re investing to protect and support.
When it comes to selecting beneficiaries for your life insurance policy, even seemingly minor mistakes can lead to significant consequences. Here are four common errors we often encounter, along with recommendations for rectifying them promptly.
- Failing to Name a Beneficiary:
It’s crucial to designate at least one primary adult beneficiary on your life insurance policy. Neglecting to do so, or designating your “estate” instead, can result in your insurance proceeds being tied up in probate court. To avoid this, designate both primary and contingent beneficiaries, ideally including the trustee of a well-considered Trust Agreement for maximum protection. - Forgetting to Update Beneficiaries:
Regularly review and update your beneficiary designations, especially after major life events like divorce, deaths, or births. Failing to update beneficiaries, particularly after a remarriage, can inadvertently disinherit your current spouse or loved ones. - Naming a Minor as Beneficiary:
While technically possible, naming a minor child as a beneficiary can lead to complications. Insurance proceeds intended for a minor are typically managed by a court-appointed custodian until the child reaches adulthood. Instead, consider setting up a trust to receive the proceeds and appointing a trustee to manage them on behalf of the minor child. - Naming an Individual with Special Needs as Beneficiary:
Directly naming a loved one with special needs as a beneficiary may jeopardize their eligibility for government benefits. Instead, establish a special needs trust to receive the insurance proceeds. This ensures that the funds are managed appropriately and do not affect the beneficiary’s eligibility for essential benefits.
Avoiding these common mistakes in your life insurance beneficiary designations is essential for ensuring that your loved ones receive the maximum benefit from your policy. If you’ve made any of these errors, don’t hesitate to reach out to us for assistance in updating your beneficiary designations and protecting your family’s financial future.
Disclaimer: The content provided on this website by 5 West Legal Services, PLLC, is for informational purposes only and is not intended to constitute legal advice. For personalized legal advice related to your specific situation, it is essential to consult with a qualified attorney. Please be aware that viewing this website, downloading content, using forms, tips, or information kits, or any other form of interaction with this site, does not create an attorney-client relationship. Such a relationship can only be established through a fully-executed, written agreement. Additionally, it’s important to note that client testimonials or endorsements found on this website do not guarantee or predict the outcome of your legal matters. We are committed to ensuring the accessibility of our website to individuals with disabilities and strive to provide an inclusive online experience. Thank you for visiting our website. Your use of this site indicates your acceptance of these terms.
