We often focus on what to do and how to do them correctly. For example, how do we find the right life insurance? But knowing what not to do also guides us in the right path. Here are four of the most common life insurance mistakes you don’t want to make.
1. Naming a Minor as Beneficiary on Life Insurance
This is like handing a brand-new S-class Mercedes to a teenager who doesn’t know how to drive. Here are just a couple of things wrong with this decision: youth and lack of experience.
When a minor is named as a beneficiary on a life insurance, the money is held in locked account until the minor becomes of legal age. Suddenly in one day, the now-adult is given a large amount of money when they don’t have money-handling experience. In the estate planning world, this is a big mistake for the minor child with legal consequences. Instead, with a properly drafted trust, you can leave the money to the child and control how and when they received it and use it.
2. No Back-Up Beneficiaries on Life Insurance
This happens in two cases: you simply haven’t named a contingent beneficiary for the life insurance or the named beneficiary dies before the insured. Solve this problem by designating a beneficiary and a contingent beneficiary (as back-up to your original beneficiary) for a well-planned and secure life insurance.
3. Failing to Check Your Policy Every Three Years
Revisiting your life insurance policy every three years is very important because of all the rapid and gradual changes that occur in life. You want to make sure that what you had originally wanted back then is what you want in your life insurance today. Your life insurance policies should keep up with your major life events. Contact your life insurance carrier every three years to reapprove of your beneficiaries and confirm in writing that your policy is active.
4. Beneficiary Language is Wrong or Unclear
Beneficiary language can mistakably be ambiguous or incorrect on life insurance policies, creating problems in the future. Contact your insurance carrier and verify this information, preferably in writing. The most common mistake we see is when a life insurance policy beneficiary form incorrectly spells out the name of the trust. The name of the trust by itself is not a legal entity. Be sure to always include the name of the trustee in your beneficiary designation and avoid these life insurance mistakes.
