Failing to name a life insurance beneficiary can cause significant problems.
The end of one year and the start of another year is often a time to reflect on the past and plan for the future.
People often reminisce about happy memories and hard losses.
These reflections can inform the goals people make for the coming year.
According to a recent Yahoo Finance article titled “What Happens If I Don’t Name a Life Insurance Beneficiary?,” one goal anyone could benefit from addressing in 2023 is purchasing, reviewing, and updating life insurance policies.
Life insurance policies have benefits for anyone.
They can be used to cover funeral payments, provide income for a surviving spouse, or fund college education.
A life insurance policy is a contract with the insurance company.
Typically, you must pay premiums on the policy until you die for the policy to be effective.
The company will follow your instructions regarding who should receive policy benefits when you die.
Designating a life insurance beneficiary and keeping this updated is essential to a comprehensive estate plan.
What happens if you do not designate a beneficiary?
The life insurance proceeds may be paid to your estate by default.
This can delay access to the funds, expose them to your creditors, or even increase your taxable estate.
You may designate a primary beneficiary to receive all of the funds and contingent beneficiaries in case your primary beneficiary dies before you.
Because some people have the same names as strangers or other family members, it is important to be detailed in the information you provide on your beneficiary form.
If you think your name is “one of a kind” unique, then chances are it is not.
Just run an online search to prove me wrong, especially with only your first and last names.
Consequently, providing the full legal name and any other identifying information can help avoid confusion.
What happens if you designate a beneficiary and do not provide for a contingent, but the primary beneficiary predeceases you?
Depending on the life insurance contract itself, the life insurance benefit could either default to your estate or pass to the heirs-in-law of your beneficiary.
Those who inherit after someone dies intestate are also termed heirs-in-law.
Absent provisions in a life insurance policy, most states have their own rules regarding what happens to a life insurance policy if the insured/owner dies with no living designated beneficiary.
Working with an experienced estate planning attorney can help you avoid these potential problems.
Reference: Yahoo Finance (Dec. 10, 2022) “What Happens If I Don’t Name a Life Insurance Beneficiary?”