Video – Naming Life Insurance Beneficiaries: Three Big Mistakes

July 7, 2020


Naming life insurance beneficiaries might seem simple, but if you’re not careful, you can create major problems for the loved ones you’re trying to benefit — especially if you make one of the Big Three Mistakes.

Life insurance is a foundational part of estate planning. Learn more int his video. And for a free copy of my report on How Much Should an Estate Plan Cost, click here.

Listen to the sad story of the Hunt Family and the lessons they can teach you about properly naming you life insurance policy beneficiaries. Any of these three mistakes can leave your family locked in a courtroom while grieving your loss. In some cases, like with the Hunts, it can happen even if your family agrees on how to handle your affairs when you are gone.

If you want all the sad details, read the court case here:

If you want more estate planning tips for your family whether it’s about a life insurance policy, a will, a trust, a guardianship, asset protection, or a power of attorney question, in the coming weeks, we’ll be providing the answers you can get by subscribing to this channel.

Here are the Three Big Mistakes discussed in this video:

Number 1: Failing to name a beneficiary for your life insurance policy

Although it would seem like common sense, whether intentional or not, far too many people fail to name any beneficiary at all. Others make the mistake of naming “my estate” as the beneficiary, rather than listing a specific person. Both of these errors will mean your insurance proceeds will have to go through the court process known as probate. That means locking your loved ones in the court process.

To prevent this, make certain you name—at the very least—one primary beneficiary.

Number 2: Failing to keep your life insurance policy beneficiary designations updated.

While failing to name any life insurance policy beneficiary at all is a huge mistake, not keeping your beneficiary designations up to date can be even worse. This is particularly true if you are in a second marriage and fail to remove an ex-spouse as beneficiary. This can leave your current spouse with nothing when you die.

To prevent this from happening to your family, you should review your beneficiary designations annually as part of an overall review of your estate plan, and immediately update your beneficiaries upon events like divorce, deaths, and births.

Number 3: Naming a minor as your life insurance policy beneficiary.

Though you are technically allowed to name a minor child as beneficiary, it’s never a good idea. Minor children cannot receive insurance benefits until they reach the age of majority. If a minor is listed as the beneficiary, the proceeds of your insurance will be distributed to a court-appointed custodian, who will be in charge of managing the funds (often for a fee) until the age of majority, at which point all benefits are distributed to the beneficiary outright.

This is true even if the minor has a living parent. A child’s living parent could petition to the court to be appointed custodian, but there is no guarantee that a parent would be appointed as custodian, especially if the parent cannot qualify or pay for a bond. In many cases, a court could deem a parent unsuitable (if they have poor credit, for example) and instead appoint a paid fiduciary to control the funds.

BONUS Mistake to avoid: Naming an individual with special needs as your life insurance policy beneficiary.

If you leave the money directly to someone with special needs, it could disqualify that individual from receiving much-needed government benefits.

Rather than naming someone with special needs as beneficiary, you should create what’s called a “special needs trust” to receive the insurance proceeds. This way, the money won’t go directly to the beneficiary upon your death, but it would be managed by the trustee you name and dispersed according to the trust’s terms, without affecting benefit eligibility.

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