Avoid These Mistakes When Naming Life Insurance Beneficiaries
Who are you going to name as your life insurance policy beneficiary? You have many options. Your beneficiary could be a son or daughter, your spouse, a trustee or organization. The point is to make sure your assets go where you want them to. But a lot can go wrong if you err in naming your beneficiaries.
1. Don’t name a minor as beneficiary.
If you want a child to be a beneficiary you’ll need to create a trust or name a guardian to legally manage the money for the child. Appoint a legal trust or legal guardian to ensure the money goes to the child when he or she reaches adulthood.
2. Be specific.
Now is not the time to be general. Be sure to name the beneficiaries specifically, whether it’s an individual or several people such as your children. Include all names, social security numbers and exactly how to split the funds. For an organization include the name, address and tax ID number.
3. Avoid probate.
Don’t leave it to your will to allow your policy funds on to those you want to be the beneficiaries. Since your will must go through probate it could take years and lots of money to have your policy benefits distributed. Avoid probate by establishing a trust.
4. Prevent taxation.
Although death benefits are usually tax-free, there are circumstances that could cause the money to be taxed. It may be considered taxable if one individual owns a policy while a second is named the insured and a third is the beneficiary.
Structuring a life insurance policy can be complicated, so be sure to check with an accountant or financial advisor to understand the implications.
Want to learn more? Read this article about naming beneficiaries. For the ins and outs of life insurance, visit the Einsurance life insurance page, where you can also generate policy quotes.