Make sure you avoid these 3 mistakes.
Selecting a Beneficiary on Your Life Insurance or Mortgage Protection Life Insurance Policy
It’s easy to make beneficiary mistakes. The beneficiaries named in your life insurance or mortgage protection life insurance (mortgage protection insurance) policy are the people or organizations who will receive the proceeds from your policy after you’re gone. Who you choose to be your beneficiary is up to you. It can be a person, a group of people or even a charity.
Understanding your options when naming a beneficiary can be overwhelming. In order to help you avoid problems, here are three of the most common mistakes people make when selecting a beneficiary.
Avoid these 3 beneficiary mistakes
1. Naming only one
In addition to your primary beneficiary (the person you want to receive your life insurance or mortgage protection life insurance benefits after you die), you should name secondary and tertiary beneficiaries. In other words, list who’s first, second and third in line to receive your life insurance or mortgage protection insurance policy benefits. When asked to name a primary beneficiary, people often name their spouse or significant other. But what if something happens to both of you? Or what would happen if your primary beneficiary dies before you do?
For example, if your primary beneficiary isn’t alive when you die, it’s your secondary beneficiary who receives the proceeds. And if you guessed that it’s the third beneficiary who steps in if your primary and secondary beneficiaries aren’t alive when you die, you are correct.
Asurea Simple Solution Tip: Even though it is not required, if you can, make sure to name more than one person as your life insurance or mortgage protection insurance beneficiary. Also, review the beneficiaries on your insurance policy every few years. Life events such as marriage, divorce or a new baby are big life changes that may require you to update your beneficiaries.
2. Naming a minor
If you are a parent, you may think that naming your child as the primary beneficiary is the best way to provide for them in case you or your spouse die unexpectedly. However, naming a child as a beneficiary can be a huge mistake.
In most states, a child isn’t an adult until they turn 18, and life insurance companies won’t pay life insurance benefits to a minor. If you purchase life insurance for the benefit of your children, and they’re still minors when you die, you’ll need to make arrangements for a trusted guardian – such as a close family member – to manage the money on their behalf.
List that trusted guardian as the primary beneficiary on your life insurance policy. If you don’t choose a guardian, the court will assign someone for you.
Better yet, set up a life insurance trust for your child to make sure the funds get distributed when, where and how you want.
Asurea Simple Solution Tip: Decide ahead of time who will make the best guardian of your minor children until they become adults. You’ll want to speak with that person first before naming them as a beneficiary so that they fully understand their responsibilities and obligations. If you set up a trust, make sure you discuss all of the details with the trustee.
3. NOT naming names
Be very specific when choosing your beneficiary or beneficiaries. People often make the mistake of not being specific enough when naming beneficiaries.
For example, do you have more than one child? Do you have children from a previous marriage? Don’t name your beneficiaries as “my children” on your life insurance policy. List each child’s name.
Asurea Simple Solution Tip: When naming multiple beneficiaries, be very specific about who gets what. For example, list your children’s legal names and Social Security Numbers. Leaving money to a charitable organization? Then be sure you have the organization’s name, address, and tax ID number.
Our experienced Asurea Agents will work with you every step of the way, making it easy for you to choose beneficiaries and make updates to your life insurance or mortgage protection life insurance policies, giving you that extra peace of mind when life throws you curves. Contact us today to make sure your beneficiaries are correct.
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Asurea offers Life Insurance, Mortgage Protection Life Insurance, Medicare Supplement Insurance, Final Expense Insurance, Disability Insurance, Long-term Care Insurance, Retirement Planning products and more. For additional information, click on the ‘Learn more’ button below. Want to have articles just like this delivered to your inbox? Just enter your email address in the box below and click ‘Subscribe.’
This information is provided for general consumer educational purposes only and is not intended to provide legal, tax or investment advice. Dollar amounts are for illustrative purposes, not actual.
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