Life Policy Beneficiaries – 7 Common And Costly Mistakes
The beneficiary designation is one of the smallest areas on an application form. It is also the site of some of the biggest mistakes.
Here are the seven most common:
- Making the estate the beneficiary – Death proceeds are turned over to the Probate Court where they will be subject to creditor claims.Distribution is according to the insured’s Will and could take two years or more.Everything is a matter of public record.
- Failing to name a contingent – The beneficiary will not always outlive the insured, true half the time when married couples have cross-owned policies.
- Multiple beneficiaries, improper designation – Is distribution to be made equally or disproportionately?Is surviving the insured necessary to collect?If not, does the share pass per stirpes or per capita? Full instructions are necessary, even if it means an addendum to the application.
- Multiple beneficiaries, insufficient allocation – The total death benefit must be disbursed.Carriers insist that shares be on a percentage basis, not in dollar amounts, adding up to 100%.
- Designating minors – Every state prohibits distributions before the age of legal majority.A custodian must be appointed for a minor according to the state’s Uniform Transfers to Minors Act.
- Insufficient identification – Make sure there is sufficient information on the application or upon delivery to assure the carrier can find the beneficiary.
- Ignoring changed circumstances – When beneficial interests change with events it should be reflected with beneficiary changes.The most often overlooked are in response to a divorce.
Plain and simple, beneficiary designations are tricky. We will help you get them properly drafted in a manner approved by the carrier. Contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.