Importance of Having a Beneficiary

Apr 14, 2014

Life insurance is an integral part of every group benefits program. It is important to choose a beneficiary and ensure that it is up-to-date as you go through life’s journey. Although this may seem like a simple task, mistakes are common and may affect the people you leave behind.

Life insurance is paid out as a lump sum tax-free benefit upon the individual’s death. Some insurance carriers request that the benefit be paid out within 365 days to the beneficiary, otherwise it will be paid to the policyholder’s estate. This can lead to two complications: increasing the length of time for the benefit to be paid out and not protecting the policy from probate which will leave it vulnerable to creditors. The latter complication can also be the case if the policy were left to dependents under age 18 or 21 (depending on the contract) and a trustee has not been assigned.

While it is common to choose a spouse or dependent as the primary beneficiary, it is a good idea to assign a secondary beneficiary in the event that something happens to the primary beneficiary, i.e. sudden death. In a situation where you assign multiple beneficiaries, be sure to allocate the intended percentage of the policy amount to each beneficiary. This will alleviate any frustration for family and friends at an already difficult time.

I recommend that a review all of insurance policies every 2-3 years to ensure everything is current. Even if there is no beneficiary change, the contact information, such as address or surname might need to be updated. No fees will be incurred if a change were made.

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