4 Reasons You Should Check—and Double-Check—Your Beneficiaries

August 6, 2018

The whole reason you got life insurance was to protect your loved ones. But if you’re not careful, your life insurance money may not end up in the hands of the individual you intended.

Naming your beneficiaries sounds like a simple enough process, and in general it is. The problems arise when you don’t provide enough information about your beneficiaries or your life circumstances change (and trust us, circumstances always change).

Here are four reasons you should check—and double-check—your beneficiaries today.

1. Your beneficiary has a common name. According to Ancestry.com, there are 38,313 James Smiths and 32,092 Maria Garcias in the United States. If it’s not immediately clear which James Smith or Maria Garcia you selected as your beneficiary, things can get complicated very quickly. Even if it seems clear to you, it’s better to err on the side of caution. Include Social Security numbers and addresses for your beneficiaries so there is no question about who will receive the proceeds of your life insurance policy. 
2. You get divorced and/or remarry. After a painful divorce, you’ve met and married the love of your life. Congratulations! Unfortunately, your life insurance company wasn’t invited to the wedding. After major life changes like a marriage or divorce, you’ll want to update your beneficiaries. Otherwise, your ex may get a sudden windfall while your beloved spouse ends up with nothing.
3. You have another child. You thought you were done having children. Surprise! In between diaper changes and much-needed naps, be sure to add your new baby to your policy as soon as possible. Note that minors may not receive a life insurance payout. Until your child is an adult, you’ll need to name a custodian, guardian or trust as the beneficiary. Even if your child legally is an adult, you may want to consider establishing a trust to manage the proceeds until your child hits 25 or 30.
4. Your primary beneficiary dies before you do. There are two types of beneficiaries: primary and contingent. The primary beneficiary is the individual who will receive the proceeds of your policy, while the contingent beneficiary is in place in case your primary beneficiary dies. If your primary beneficiary does indeed die before you, it’s a good idea to update your beneficiaries and make sure you still have both a primary and a contingent beneficiary.

There are a few other things to keep in mind when it comes to naming your beneficiaries. First, remember that your life insurance policy is a contract, and as such, the life insurance company is obligated to give the proceeds of your policy to whomever you named as your beneficiary no matter what another document says. In other words, your life insurance policy supersedes your will. Make things easier on everyone and be sure your wishes are reflected correctly in both documents.

Second, you can name multiple primary beneficiaries. To keep things simple, it’s a good idea to assign percentages to each beneficiary rather than a set dollar amount.

Finally, as with all estate planning, communication is key. According to Consumer Reports, 1 out of every 600 people is the beneficiary of an unclaimed forgotten or misplaced life insurance policy. Make sure your loved ones know you have a life insurance policy. Tell them you have uploaded it to InsureYouKnow.org, and let them know how to access it. The last thing you want is for all your careful planning and preparation to go to waste.