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Life Insurance
Beneficiaries
The primary purpose of a life insurance policy is to provide an amount of money to a beneficiary when he/she needs it most - at the death of the insured person. The ability to name a beneficiary, in fact, is one of the most important responsibilities that the policy owner assumes.
For many people, the decision is an easy one. Often, for young working couples, the logical choice is one's spouse or partner. Many parents, however, might be tempted to name their children as beneficiaries. This could be a drastic mistake, especially if the children are minors.
In the eyes of an insurance company and of a court, a minor does not possess the legal capacity to accept life insurance proceeds and provide a valid receipt for them. In many cases, a guardian will need to be appointed to manage the funds until the child reaches the age of majority (18 or 21), at which point the funds will be released. This process can be costly and time consuming.
Consider the following example. After he graduated college, Jim took a job with a large bank as a teller. He has been with the bank for 20 years and, when he initially enrolled in his employer's group life insurance program, he was single and had no children. His logical choice for beneficiary then was his mother, with whom he lived and helped support. Today he is married, has three children, and his mother has since passed away. Jim, however, has not yet changed the beneficiary designation on his group life insurance policy. What would happen if he died today?
One thing is certain - by not keeping his beneficiary designation up-to-date, he has made settling his estate and filing a claim much more cumbersome for his family. Here are a few instances when you might consider changing the beneficiary designations on your life insurance policies:
- When you get married
- When you get divorced
- When you have/adopt children
- When a spouse or loved one dies