What to Know Before Naming Life Insurance Beneficiaries

There are a lot of big decisions to make when you set up a life insurance policy, and none is more important than who you name as the beneficiary. It’s not as straightforward a putting a name on a piece of paper. A lot of thought needs to go into this decision.

Community-Property States Require a Spouse Signature

In community-property states like Texas, you will need your spouse’s signature on the life insurance policy if you want to name someone other than the spouse as the beneficiary.

Naming a Single Primary Beneficiary Can Lead to Problems

Many people name their spouse as the beneficiary. While this is understandable it’s not the best idea because your spouse could pass away first or at the same time as yourself. If this were to happen and the beneficiary is no longer living the life insurance proceeds could be put in an estate and it could be quite challenging for heirs to receive the funds. Instead, name a secondary beneficiary who will receive the benefits in the event the primary beneficiary has already passed away.

Life Insurance Contracts Override Wills

Many people make the mistake of thinking that their will is the ultimate document when it comes to splitting up assets after a death. However, the life insurance policy is the deciding factor when it comes to death benefits. If you need to make changes to the beneficiary make it on the policy first and foremost.

Minors Won’t Get the Money

Proceeds from a life insurance policy can’t go directly to a minor. Many problems can arise if your beneficiary is under 18 (21 in some states) and they may end up never seeing any of the money. Instead, set up a trust fund for the minor and name the trust as the beneficiary.

Life Insurance Proceeds Will Make the Beneficiary Ineligible for Government Aid

If your beneficiary is on Medicaid or SSI they will lose it after receiving money from a life insurance policy. According to federal laws, if a recipient gets an inheritance or gift of over $2,000 they will be disqualified from these programs. Instead set up a trust for the person and name the trust as the beneficiary.

Life Insurance Benefits Can Come With Conditions

You have control when it comes to your life insurance benefits far beyond naming the person that will receive the money. Again, creating a trust is a great idea if you want to have a say in how funds are allocated. You can put conditions on the funds such as how the money is paid out and what it’s used for. Some life insurance policies are even giving policyholders the option of deciding whether benefits should be paid in one lump sum or given in installments.

Naming “Children” Isn’t the Same as Listing Names

Many people want their children to be the beneficiaries of a life insurance policy. While this may seem cut and dry to you, to the life insurance company it’s a much more involved affair. Unless you specify names, they will have to go through an investigative process to make sure they get all the beneficiaries correct. This will take a fair amount of time, hold up the process and possibly leave money to people you didn’t intend on naming. Be specific when you name your beneficiaries.

Keep the information above in mind when you decide whom to list as the beneficiaries on your life insurance policy. And of course, keep your policy up to date by making changes as soon as possible if a new beneficiary needs to be named.

Original Source: http://www.mybiginsurance.com/life-insurance-blog/know-naming-life-insurance-beneficiaries

 

This entry was posted in Life Insurance. Bookmark the permalink.