Taking the Boredom Out of Life Insurance

June 16, 2021 - Published by IAG Wealth Partners

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You are not the beneficiary

I’m back to talk about another very important aspect of life insurance. Beneficiaries. You all know what that means. It’s the person that benefits from the policy once you are no longer “alive and vertical”. Remember, the policy is not for your benefit, it is for the benefit of the people that mean the most to you in this life.

Every three years, the advisors at IAG Wealth Partners go through an exercise of reviewing beneficiary information with their clients when they are meeting with them for their regularly scheduled financial overview. We are just finishing up on that review year (June 2020 – June 2021). Remember last week when I said that life insurance is not a set it and forget it proposition? Your beneficiary information is one of the very critical reasons why that is.

Imagine you purchased a life insurance policy when you were first married and had children. You most likely named your spouse as the primary beneficiary. Fast forward 10 years, and you and your spouse have divorced. That life insurance policy is likely gathering dust in a file drawer. (Yes, some people still use file drawers.) Now fast forward 50 years, and your current spouse is now filing a claim on your life insurance policy (you died). Unfortunately for him or her, you never updated your beneficiary information after the divorce. YES, this happens, and the former spouse is going to receive the death benefit. Here’s a twist (and, yes this happens too!). If your former spouse is deceased, you must find that person’s death certificate to submit to the insurance company. Doable, but a process for sure. But wait, there weren’t any contingent beneficiaries listed on the policy either, so now what? What happens to the death benefit? Does the insurance company simply cut you, as next of kin, a check? Yes, but not until you provide a marriage certificate to prove that you were married.

This is just one scenario that I have encountered over the years of helping our clients file death claims. The process itself is not a happy time to begin with, so you can only imagine the added stress and challenges a situation like the story above creates. There are many other issues that can arise if beneficiary information is not kept up to date on your policies and other retirement accounts.

I used to think, “what’s the big deal if someone doesn’t have contingent beneficiaries listed?” The contingent beneficiary is simply the next person in line to receive the death benefit if the primary beneficiary is deceased. Many times, people will list their children as contingent beneficiaries. There is nothing wrong with this approach unless the children are minors. An alternative is to name a personal trust as a contingent beneficiary. The trust will likely express your wishes for distribution of assets upon your death, so this would cover instructions for life insurance policies and retirement accounts without having to name individual persons.

As basic as some of this might sound, there can be a lot of nuances in determining who is named as beneficiaries of your assets and should be discussed carefully with your financial advisor and or an estate planning attorney.

So, do you see what I mean that I can go on and on about this insurance stuff? As much as we don’t like to talk about it, or think about it, I believe you can see the importance of keeping all of this information up to date. I am happy to help you review your policies to make sure they are all naming your desired beneficiaries.


Quote of the Week: No matter how much you are earning or how much you have saved; your financial position can be dented by an unexpected event in a moment. – Iffco-Tokio

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