One of the problems with beneficiaries receiving life insurance benefits is that traditionally, they have to file a claim to the insurance company. However, sometimes this doesn’t happen. This can be because the beneficiary doesn’t know they are required to claim, or because the policy documents get misplaced or lost.
Thankfully, things are starting to change. State insurance regulators have started to encourage large insurance companies to target the policies that become due for payment, following a life insurance policy holder’s death, and contact any beneficiaries, telling them what they need to do.
If you have a life insurance policy, and you want to make certain that your beneficiaries receive their due benefits after you are gone, you should review the situation and make sure that those people you want to receive the benefits are named as the beneficiaries.
The beneficiary designation form
When you take out a life insurance policy, the insurer will give you a beneficiary designation form. This form allows you to list all the names of those you wish to benefit from your life insurance policy. If nothing changes from that time until your death, then that will be all you need to do.
However, life is rarely so simple. There are many things that can change the situation, requiring you to review your policy and possibly change it. These things include, divorce or separation, a new baby in the family, marriage if you were single previously, or a new marriage if you were divorced, your retirement, and the death of one or more of your beneficiaries.
If you keep on top of all possible changes that may affect your life insurance, and any designated beneficiary, it will make the situation much easier to manage when you die, and when those you leave behind have to settle up all your affairs. Each designated beneficiary of your policy should receive the benefits they are entitled to without any undue difficulties.
When you list a beneficiary, or beneficiaries, whom you wish to receive life insurance benefits, it bypasses your estate. That means that no one can lay a claim to the money, and that includes any creditors you may owe money to. It also includes anyone, family or otherwise, who walks in claiming, “Those are my benefits” from receiving any money they are not entitled to.
If, when you die, your life insurance policy is not fully up to date with any changes that may have occurred since you took the policy out, it is possible that those you intended to benefit from the policy may not be able to do so. You owe it to your life insurance beneficiaries to stay vigilant, and consult your legal advisor if in doubt.
Your last will and testament
You should not confuse matters by having a contradictory last will and testament. Both your will and your life insurance policy should agree on all pertinent details. However, should your will state that a certain person is a beneficiary of your policy, but your policy states that another person is, it is the listed beneficiary in the policy that gets the life insurance benefit.
If the beneficiary of your policies are children and likely to be under the age of 18 when you die, you need to appoint a trustee to take care of the money until they are legally old enough to do so themselves. The alternative is that a court will assign a trustee, and that may not be in your children’s best interests.
The trust will be so structured that there will be clear instructions about what the money can and can’t be used for while they are still under the age of 18. It will be the duty of the trustee you designate to see that those instructions are properly adhered to and carried out.
Taking out a life insurance policy with the intention of leaving financial benefits to those who are likely to live longer than you do is a very good plan. However, if you do not keep on top of the situation, and if you do not have those you wish to benefit named as beneficiaries, the end result may not be what you intended. Naming a beneficiary is easy, and it will prevent any possible confusion at a later time.
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