Ineffective Life Insurance

You've got the best of intentions in providing for your loved ones after you're gone, but your actions could come back to haunt them in the form of a bumbled life insurance payout if you're not careful. Here are five mistakes to avoid so that your beneficiaries get what they're owed - no matter what type of life insurance policy you have.

1. Lying on your life insurance application
They say the truth hurts, but it can hurt even more if you lie when you fill in a life insurance application. While it may be tempting to deny that you're a smoker, or that you've been treated for a particular disease or medical condition, you could find your policy null and void.

2. Failing to make premium payments and letting your policy lapse
Just because you miss a payment doesn't mean your policy is dead in the water. Life insurance companies typically offer policyholders a 30-day grace period for payment, and some companies extend that to 60 days. During that time your policy will still be in effect.

3. Failing to tell loved ones about your life insurance policy
If you never tell your beneficiaries about your life insurance policy, it doesn't mean the insurer won't pay them after your death, but it does make it a more difficult process. Most life insurance companies conduct database checks for the death of policyholders so beneficiaries will get paid, not all of insurers do so in a timely manner. That's why it's wise to be sure your loved ones know about your policy and where to find it after you're gone.

4. Not naming a secondary and final beneficiary
It is important to name secondary and final beneficiaries. If your primary beneficiary dies before you, policy proceeds will go to the second beneficiary you have listed, Rothschild says. If the secondary beneficiary has passed away when you die, then the death benefit goes to the final beneficiary.

5. In some cases, death due to risky behavior and suicide
Life insurance policies typically have a two-year exclusionary period for suicide, so your beneficiary typically would receive whatever you paid in premiums, but not the policy's face amount. So-called "suicide clauses" vary by insurer and are designed to discourage people from buying life insurance when contemplating suicide.