Whether you already have a life insurance policy in place, or you're looking for a life insurance policy that's right for you, there are a few things you should consider when it comes to naming your policy's beneficiary. Below is a helpful list, which contains dos and don'ts when it comes to naming a beneficiary and how following the proper procedures can decrease the stress for you and your family.
Don't Name Your Estate as Beneficiary
You may find yourself struggling to name a beneficiary on your life insurance policy, but it's never a good idea to name your estate as beneficiary.
When your estate is named as beneficiary, the proceeds of your insurance policy will go into a process known as probate. This process, which is done to ensure that all funds and possessions are fairly distributed, is lengthy and costly. This means that naming your estate as beneficiary could cause your family undue grief, and could leave them short a few thousand dollars after all is said and done.
Don't Name Minors as Beneficiary
One of your biggest concerns about an unexpected death is how your minor children will be cared for. Unfortunately, naming them as the beneficiary to your life insurance policy isn't the best way to go about ensuring their care.
Simply put, life insurance companies will not pay out any benefits to a minor child. When you name a minor child, you're setting them up for a lengthy court process (in which a guardian will have to be appointed by the courts). This means that there could be months, or even years, before they get any support from your life insurance policy payout. So, what can you do? The best way to ensure that your minor children are cared for is to set up a trust.
Do Set Up a Trust and Name the Trust as Beneficiary
Whether you'd like your minor children to receive the life insurance payout, or you're just concerned with how the money will be handled by a mentally ill or otherwise unwell beneficiary, the setting up of a trust and naming it as the beneficiary is an easy way to ensure that your loved ones are cared for upon your death.
There are a variety of trusts to choose from, and there's a number of stipulations you can place on money that is sitting in a trust. For example, with a trust, you can specify that your children receive a portion of their money on their 18th birthday and the rest on another date. Or, you can specify that a portion of the trust it to be used for education, and the rest can be gifted to them for their own personal use. With the help of a trust, the proceeds of your life insurance policy will be protected and used only for what you specify. Another great thing about trusts? You can name a trustee (the person who will ensure the money is distributed properly) yourself, or you can use a professional trustee who has no personal connection to you and your family.
Do Update Your Policy's Beneficiary After Major Life Events
During times of transition and change, it's always a good idea to ask yourself, "will this change impact who I have named as the beneficiary on my life insurance policy?" For many life changes, such as divorce and marriage, the answer to this question is, "yes!"
Whether you're dealing with the death of a loved one who you had named as beneficiary, or you're about to get married, it's important to remember to update your policy's beneficiary as soon as possible after major life events. Fortunately, changing your policy's beneficiary is a quick and easy process, so be sure to call up your life insurance agent immediately after a life event has taken place.
To learn more about naming the proper beneficiary for your life insurance policy, speak with a knowledgeable life insurance agent from a company like Daniel L. Rust Insurance today.