How can poor wording choices affect your life insurance policy? Any time there is an event in your family such as a death or a divorce it is a good idea to look over the beneficiary designation in case any changes need to be made.
When purchasing a life insurance policy, one of the most important decisions to be made is who the beneficiary will be. The beneficiary is the person who will receive the proceeds of the policy when the insured person dies. The wording of your policy is very important when it comes to the designated beneficiaries because it will be taken very literally upon your death. If you do not make contingency plans for any changes that may occur, it could mean that no one will receive the money or that parts of the money will be lost to your estate and be subject to probate.
In order to be sure that your beneficiaries receive the money that is intended for them, Joe Sostarich, a 26-year veteran of life insurance sales and management tells us, "You should name each beneficiary by name and the percentage of the money that they should receive. You should also remember to designate a portion of the money for payment of your final expenses." In some families, there may be some children who might benefit from a larger amount and others who are well off enough that they do not need such a large percentage. If you have more than one child, you need to name each child individually on the policy rather than just say "children." If you name specific children as beneficiaries, some that are born after you have taken out the policy may be excluded. Other potentially excluded children could be the children of your spouse from another marriage if you do not name them specifically. Be sure to review your policy and beneficiaries from time to time to make sure that they are up to date. Changing the beneficiary designation on your policy is simply done and can be done many different times.
If one or more of your beneficiaries become estranged from the family and no one knows where to find them, it is helpful if their social security number is included with their name on the policy. Also, if you leave your policy proceeds to more than one beneficiary it is useful to include a contingency plan with instructions for what to do if one or more of the beneficiaries have died before you. You need to designate whether you want a deceased beneficiary's money to be distributed to the other beneficiaries or if it will go to their heirs.
Naming a spouse as a beneficiary can be a tricky business. If you name your spouse as beneficiary you must include their whole name and preferably their social security number as well. If you were to just name your "wife" or "husband" as a beneficiary an ex-spouse or a future spouse could lay claim to the money. You must also plan for a backup beneficiary in case your spouse was to die before you.
Revisiting the beneficiary designations on your life insurance policy from time to time is an important part of having life insurance. Any time there is an event in your family such as a death or a divorce it is a good idea to look over the beneficiary designation in case any changes need to be made.
