Saturday, March 12, 2011

How to chose a life insurance beneficiary

Life insurance policies require that you name a beneficiary to receive the proceeds of your policy should death occur. People purchasing life insurance often do not give the beneficiary designation process much thought and simply name a spouse and/or children. However, selecting your beneficiary and keeping your choice up to date is important. Here are some of the things that you might want to consider:


Life insurance proceeds payable to a named beneficiary pass outside of probate. Naming your "estate" as beneficiary subjects the money to the probate process and that can be both lengthy and costly. Life insurance proceeds are paid immediately to named beneficiaries.


The wording of beneficiary designations is very important. Improperly worded beneficiary designations can have drastic effects on how the insurance proceeds are distributed.


It's usually not wise to name your spouse simply by designating "husband" or "wife." This could result in an ex-spouse receiving proceeds intended for others. In the event of a divorce, it is important to review all of your insurance beneficiary designations.


Naming specific children may mean that later-born children will be left out unless your initial beneficiary designation is changed.


* Saying "Children of the insured, John Smith" could mean that a spouse's child from a previous marriage, whom you intended to include, is in fact excluded.


* Stating "Children born of the marriage of Bill and Betty Jones" may result in excluding adopted children.


It is also probably a good idea to name a "contingent" or secondary beneficiary in the event your primary beneficiary has predeceased you.


People often choose the wording for their beneficiary designations in conjunction with their attorney who has drafted and is coordinating their life insurance with their wills and/or trusts.


Many advisors believe that it is not advisable to name minor children as beneficiaries, but rather to name a guardian for minor children and a trustee for the children's insurance proceeds and other assets to be managed until they reach the age of majority.


If you have grandchildren you must also decide how such grandchildren will share in the proceeds with your other children. A common consideration is whether everything will be divided equally or whether the grandchildren will split what would have been their parent's share.


It is very important to try and anticipate as many situations as possible. However, the most important step you can take is to review your beneficiary designations on a regular basis. Changing your beneficiary designations is a simple process, but you have to remember to do it. Unless you have made an irrevocable designation (one that cannot be changed), as might be the case in a divorce settlement, you can change beneficiary designations as often as you like. While you don't want to change beneficiaries frivolously, you should change them when it is appropriate to do so.

1 comment:

  1. Life insurance is very important. Life insurance helps your family after your death.There are numerous companies existing today that offer life insurance policies.

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