After
filling out the initial paperwork, we may rarely give our life insurance a
second thought – except when it’s time to write the next premium check. Still,
it’s wise to review the policy and your designated beneficiaries from time to
time.
Often,
because it has been so long since they last looked at the policy, people aren’t
even sure who is named as the beneficiary. When they go back and check,
sometimes they discover things are far different than they had remembered. When
it comes to life insurance, here are a few basic things to keep in mind.
Second,
don’t try to change your beneficiary without completing the proper forms. Some
mistakenly try to change their life insurance beneficiary in their last will
and testament or by leaving a signed note. Generally, whoever is listed in the
insurance documents will get the money regardless of what your will or any
other document says.
You
should change your beneficiary as circumstances change. If your beneficiary
dies or if you simply rethink who should get the money, change the beneficiary
in the policy documents. Until you do, the last named beneficiary in the policy
will be the one to get the money. This can be true even if that person is a
divorced spouse.
Also
don’t forget to name an alternate beneficiary. If your beneficiary dies before
you, the insurance money will be subject to probate unless you have named a
contingent beneficiary. Not only would this cost time and money, but if a life
insurance policy is probated it may become available to creditors even though
it would otherwise be exempt.
Some are
concerned about their beneficiary receiving all of the insurance money at once.
They fear the beneficiary might be careless or squander the money. An easy way
to deal with this is to establish a simple trust and have the insurance
proceeds paid out to that trust. Your trust can then distribute payments to the
beneficiary over time according to whatever conditions you specify. With a
little effort you can ensure the money isn’t blown all at once.
Finally,
be careful about naming a beneficiary who is receiving disability, Medicaid, or
other government benefits. Life insurance money can jeopardize those benefits.
As with minors, a better way is to have the proceeds paid out to a simple trust
which holds and distributes the money to the beneficiary on the terms you
dictate in the trust.
In the
end, life insurance isn’t complicated as long as you keep some important
factors to keep in mind.
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