No one likes to have conversations about death. But for people with loved ones they want to take care of financially, life insurance is one of the best investments you can make to provide them the financial security they need may and you that you may desire for them to have.
The most important item to remember, and maybe one that few people realize, is deciding who your beneficiary will be. The beneficiary is the person who will receive the proceeds from your life insurance policy after you pass away.
There are many things to consider and remember when selecting a beneficiary to receive your life insurance proceeds, but here are a few of the more important for you to consider right now:
1: Always have more than one beneficiary on your life insurance policy.
If your beneficiary dies before you do, and you don’t have another named beneficiary, the proceeds of your life insurance policy will be paid to your estate, which in many states will make it subject to inheritance taxes or taxation at a higher rate than proceeds paid directly to a beneficiary. We always advise our clients to name backup beneficiaries on their life insurance policies.
2. Review your life insurance policy every year.
We are big fans of treating your insurance policies much like you do your taxes. Just like sitting down with a CPA, you need to sit down with a professional and independent insurance agent every year to review your policies. Your life insurance policy is no different than your auto or homeowners insurance, and should also be reviewed annually.
Life is perpetually moving and changing. Sometimes those changes will affect who we have chosen as our beneficiary. For instance, if your kids were minors when you obtained your life insurance policy, hopefully you didn’t pick them to be your beneficiaries. If you children have reached adulthood, it may make sense to make them the beneficiary. What if your beneficiary has passed away or become no longer mentally competent? The point is that life changes for all of us; even our beneficiaries. Make sure you are as sure in your decision today, as you were when you put the policy in force.
3. Be as specific as possible when naming a beneficiary.
I know this one seems obvious, but you’d be surprised. Don’t use terms like wife or child. Use the full legal name of the persons you want as beneficiaries to avoid any confusion.
4. Never name an estate as a beneficiary to a life insurance policy.
As we mentioned above, making your estate the beneficiary of your life insurance proceeds, in many states, can expose it to higher taxes because they may be defined as inheritance. Also, proceeds paid to an estate are not protected from creditors. By naming a person as your beneficiary, and not an estate, the proceeds are protected from the tax man and creditors, and will go to the people you actually intended it to.
5. Do not make your beneficiary a minor.
No insurance company is going to pay a large sum of money to a minor. Your insurance proceeds will end being tied up with the state, and will end up costing the minor a lot of money to get it back. If you must, set up a trust and make the trust the beneficiary.
6. Make sure you know how to contact the beneficiary.
This one seems like a no brainer, but it is better to be safe than sorry. Make sure you have up to date contact information for the beneficiary.
Call now to see if you can save money on your insurance by speaking to a professional independent insurance agent at Journey Insurance.
Let us sift through the hundreds of insurance programs to find you the most competitive rates available. Let us do the paperwork while you spend your time doing something you actually enjoy!
Journey Insurance Agency * Irvine, California * 888.323.7480
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