Mistakes with life insurance can be costly.
You have planned ahead.
You have life insurance.
Surely, this means you are set.
According to a recent FedWeek article titled “Common Mistakes in Life Insurance Designations,” how you set up your life insurance can have unintended negative consequences.
In fact, they could leave your estate and your heirs in a tax bind.
How can you avoid costly life insurance mistakes?
If your estate is named as the beneficiary, this means the life insurance payout may be subject to creditors.
What should you do instead?
Directly name individuals or charities as the beneficiaries.
Name more than one beneficiary.
If your beneficiary dies with you or proceeds you in death, passing along your death benefits will be more complicated.
You should name at least two contingent beneficiaries as backup.
Do not merely file and forget the policy.
Life has a way of changing.
You should review your policy at least every three years.
Have you married, divorced, or remarried?
You should definitely review and update.
This also applies if someone has died or a child has been born.
When you make an update, you need to get a confirmation in writing from the insurance company.
Get appropriate coverage.
Are you the main breadwinner?
Do you have young children?
You will want enough to cover expenses for rearing these children and even paying for their college tuition.
Just because you die and your future is cut short does not mean their futures need to be compromised.
Work with an experienced financial advisor and estate planning attorney to ensure that your life insurance aligns with your estate planning goals.
Reference: FedWeek (February 14, 2019) “Common Mistakes in Life Insurance Designations”