Three Common Mistakes When Setting Up a Life Insurance Policy
Buying life insurance is generally an easy thing. You choose how much coverage your want, for how long, apply for coverage and then wait to hear back. There are some situations that you want to avoid in order to get the most out of your policy.
Here, we’d like to take a little bit of the pain out of the process of buying insurance by providing you with a few tips:
Naming Your Estate as the Beneficiary
When you fill out your life insurance application, not may people actually write the words “my estate” on the line. But, if you don’t fill in a name and there’s no beneficiary listed, then the insurance company must pay your estate.
What happens here is, if the estate is the beneficiary, the heirs will have delayed access to the proceeds because the money will need to go through probate.
Naming a Minor as Beneficiary
Another mistake is when a parent names their minor child as the beneficiary. In the event that you pass away before the minor becomes of age, the proceeds must be controlled by a court-appointed guardian until the child becomes a legal adult. The best way to avoid this is to set up a trust, naming the child as beneficiary, and then naming the trust as the beneficiary of the insurance policy.
Not Reviewing Policies after Major Life Event
The birth of a child, marriage or divorce are all major life events that should require the review of an insurance policy. There have been a number of different cases where a couple remarries and never changes the beneficiary from his old spouse to his new. In this type of situation, when the husband passes, his ex-wife will receive the proceeds of the insurance policy.