Choosing a beneficiary is a very important decision in your life, especially when choosing a life insurance policy. This is the individual who you wish to grant financial security to after your passing, which is the most likely reason you’re purchasing the policy in the first place. Because of this, make sure you’re not making these 5 common mistakes when choosing the beneficiary on your policy.
Forgetting to Update Beneficiaries Periodically
As you progress through life, things change. Your lifestyle changes and more importantly, the life of your beneficiary may change. Divorces can occur, marriage, and unfortunately death. Incorrect information about a beneficiary can cause lots of confusion and can delay the payment of money. Also, having a beneficiary (maybe an ex-spouse) who no longer belongs on the policy can be an even bigger issue if you’re in a new marriage.
Appointing Minors as a Beneficiary
A minor in most states is considered to be under the age of 18 and cannot be responsible for their actions and decisions. The child will have to wait until they’re 18 years of age to receive all of the money (21 in some states) regardless of maturity. An 18 year old having a large lump sum of money usually doesn’t turn out good. A good way to avoid this chaos is to set up a trust that receives the life insurance death benefit. If this route is taken, you can specify whether you want the money to be paid at a specific age, for a specific purpose (college expenses), or in installments, lump sums, etc.
Assuming a Will Overrides a Life Insurance Policy
An insurance policy is a contract, which means that it controls what will happen to your policy when you pass away. Your will does NOT have this kind of power. Let’s say your ex-wife is the beneficiary on your life insurance policy. However, your current wife is included in your will so you believe she’s entitled to money. Wrong. Your ex-wife will receive all money included in the policy, despite your will. Doesn’t sound so good right?
Not Informing the Beneficiary
You would assume that this is a given, but many individuals tend to forget about this step. They assign a beneficiary who they never seem to inform. If this happens, they won’t know that they’re able to file a claim when you die. This will lead to a lump sum of money not being claimed so it’s important to let them know.
Forgetting About Government Assistance
This is arguably the most overlooked scenario when it comes to beneficiaries. Government assistance, if the individual receives it, can come to an end if they receive a death benefit. If it’s a person with disability or a child, setting up a special needs trust would work best to avoid this setback.
Avoiding these mistakes will save your loved ones lots of stress and money when you pass. Feel free to give us a call at 217-345-7063 to review or update your beneficiary information if necessary. If you wish to set up a life insurance policy, feel free to take a look at our life insurance page.