Beware of These Life Insurance Beneficiary Mistakes!
Naming a life insurance policy’s beneficiaries should be a relatively simple task, but this week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing the fact that there are some situations that can lead to unintended and adverse consequences:
Life insurance has long been recognized as a useful way to provide for your heirs and loved ones when you die.
While naming your policy’s beneficiaries should be a relatively simple task, there are a number of situations that can easily lead to unintended and adverse consequences.
Here are several life insurance beneficiary traps you may want to discuss with a professional —
Not Naming a Beneficiary
The most obvious mistake you can make is failing to name a beneficiary of your life insurance policy. But simply naming your spouse or child as beneficiary may not suffice. It is conceivable that you and your spouse could die together or that your named beneficiary may die before you and you haven’t named successor beneficiaries.
If the beneficiaries you designated are not living at your death, the insurance company may pay the death proceeds to your estate, which can lead to other potential problems.
Death Benefit Paid to Your Estate
If your life insurance is paid to your estate, several undesired issues may arise. First, the insurance proceeds likely become subject to probate, which may delay the payments to your heirs. Second, life insurance that is part of your probate estate is subject to claims of your probate creditors.
Not only might your heirs have to wait to receive their share of the insurance, but your creditors may satisfy their claims out of those proceeds first.
Naming a Minor Child as Beneficiary
Insurance companies will rarely pay life insurance proceeds directly to a minor. Typically, the court appoints a guardian — a potentially costly and time-consuming process — to handle the proceeds until the minor beneficiary reaches the age of majority according to state law.
If you want the life insurance proceeds to be paid for the benefit of a minor, you may consider creating a trust that names the minor as beneficiary. Then the trust manages and pays the proceeds from the insurance according to…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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