Wednesday, June 9, 2021

Life Insurance Beneficiaries Made Easy

I received a phone call recently from a friend (I'll call her Molly) who lives in another town. She said she had some questions pertaining to life insurance beneficiaries, specifically for her mother and brother's policies. 

Without going into a lot of detail, she explained that her mother, who was in her early 90's, was starting to have some health issues. "Mom" had a couple of small life insurance policies she had purchased years earlier and Molly had questions about the beneficiaries and how the policies paid out the death benefits. 

The wrinkle in all of this was that Molly's brother (we'll call him Dan), was listed as a beneficiary and he is currently in hospice with his own health problems. Molly didn't seem to think that Dan was going to last much longer, thus confusing things further. And just to make things even more complicated, the mother had taken out a policy on Dan when he was a child, with the mother listed as the beneficiary. What a mess!

Molly wanted to know who would get the death benefits if either her mom or brother died first. I suggested we discuss one at a time. Since her mother owned the life insurance policy on Dan, the mother could call the insurance carrier at any time and change the beneficiaries. I suggested that Molly help her mom contact the company and request a form, either called a "change of beneficiary"  or "beneficiary update" form, and get it completed as to her wishes as soon as possible. 

Many times the company will be happy to email (or snail mail) the form to the owner of a policy, but most require a "wet" signature to make changes. Digital beneficiary changes are rarely accepted. The nice part is that an owner of a policy can do this is at any time.

Molly also had questions pertaining to the policy on her brother. Even though Dan was not expected to make it much longer, what would happen if the mother died first? There were no other beneficiaries listed, according to Molly. 

Even though her brother was the insured, he had no real rights to make changes since he was not the owner of the policy. Again, the mother was in control. My suggestion to Molly was to get additional changes forms to update the beneficiaries on the policy insuring her brother. Her mother could add Molly as a "contingent" or "secondary" beneficiary. 

All of this is why we emphasize checking your policies from time to time and making sure your beneficiaries are correct. Updating this information can avoid a lot of headaches for your loved ones. 

Just so you know, beneficiaries can be prioritized, i.e. Primary, secondary (or contingent). In other words, if your primary beneficiary dies before you do, or at the same time, your secondary beneficiary would receive the funds. 

However, some people choose to split up their beneficiaries. A parent may want two people to share equally. When this happens, they can both be named as primary beneficiaries, but each receiving 50% of the death benefit. 

I try to convince my clients to keep things as easy as possible. Naming beneficiaries in order instead of dividing up things can be more helpful, especially when it comes to paying down debts, like mortgages and other bills. Also, as in the case of Molly's family, some beneficiaries may pass away before the insured. 

Another thing to consider is that children under 18 years of age should not be listed, as the insurance company will not send money to a minor. Many of our clients who are single parents tend to name other family members who will put the money aside for the child until they are responsible. 

Please keep your beneficiaries up to date and if you have questions, drop us a note.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient, and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog! 

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