Having a life insurance policy is a great first step toward providing for your loved ones should something happen to you. Unfortunately, life insurance policies, like estate plans, can be complicated. Even a simple mistake can lead to disastrous consequences for your loved ones.
In this article, I’ll cover my top 6 tips to help you avoid common life insurance errors. This way, you can rest assured that your life insurance proceeds will be used the way you intend, no matter what.
1-Do Not List Your Minor Children as Beneficiaries
Children under the age of 18 will not receive a lump sum inheritance or access to your estate assets until they are of age. If you list a minor child as your beneficiary without estate planning documents designating a guardian, the courts will have to decide who controls your child’s inheritance. Then, they will receive any remainder in a lump sum once they turn 18, which is not ideal for most children.
2-Ensure Your Will and Beneficiary Designation Match
Beneficiary designations on a life insurance policy will be followed regardless of what is stated in your Will. This is important to remember, because some people think they can change their beneficiary via their Will. Worse yet, some people forget their beneficiaries and accidentally list different names in their Will. It’s best to ensure your beneficiary designation and the terms of your Will match – to make sure there will be no question as to your wishes.
3-Do Not Designate a Beneficiary With Special Needs
If you would like to care for a child with special needs or a disability, it is best not to identify them as a life insurance beneficiary. A lump sum life insurance payout could disqualify them from receiving government benefits. Likewise, you should consider the circumstances of your beneficiaries. Leaving a large sum of money to a child with a substance abuse problem could lead to major problems. Fortunately, there are ways you can still provide for children with special needs, while minimizing these risks.
4-Remember to Update Your Life Insurance Policy Regularly
Just as you should be constantly re-evaluating and updating your estate plan, you need to keep your life insurance policy current. Make sure you maintain the latest documentation, adjust your policy as needed, and remember to keep your beneficiaries current. It’s all too easy to forget about life insurance beneficiary designations after major life events, like a divorce or the death of a loved one. But forgetting to change your beneficiary could have disastrous consequences.
5-Inform Your Family Members of Your Policy
One of the biggest mistakes parents make is keeping their life insurance policy a secret. If you have a policy, keep copies in a safe (yet accessible) place and let your trusted loved ones know where they can find it in an emergency.
6-Name More Than One Beneficiary
In life, it’s best to always have a back-up plan. If you only name one beneficiary and they pre-decease you (because we truly never know), your insurance payout may have to be distributed according to state law or based on the opinion of a Judge.
I’m Here to Help You Avoid Common Estate Planning Mistakes
As a parent myself, I want to help you protect and provide for your children no matter what happens. Since I focus exclusively on estate planning, I know all the common pitfalls, as well as how to avoid them. Together, we can ensure your loved ones are cared for that way you intend.
If you would like to learn more about protecting the people you’ll leave behind, contact my office for a complimentary Strategy Session.
More often than not, parents are forced to play the role of disciplinarian. We find ourselves telling them, “Stop that!” “Get that out of your mouth!” and “Don’t hit your sister/brother!” multiple times throughout a typical week. To counter this negativity, it can he useful to catch your children being good. Let them know when they are doing something right and praise them for it – like “You picked up your toys without being asked, I’m so proud of you!” This is considered positive parenting and it goes a long way toward encouraging the type of good behavior you want to see in your child. Take the time to praise your child for positive behavior everyday and you might just find it happens more often!