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Did You Pick the Wrong Beneficiary?

The selection of your life insurance beneficiary often seems like a simple decision.

Your spouse…

Your kids…

Your business…

Your favorite charity…

They’re all easy choices.

So most people just go ahead and write them in on the application.

But sometimes what seems simple now creates a major headache later….

Don’t designate the wrong beneficiary

Financial writer Barbara Marquand points out the 10 most common pitfalls in beneficiary designations.

The bad news is that any one of them can cause a lot of heartache, and trigger extra expenses.

The good news is that the solutions to these problems can often be quick, easy, and not very costly.

Here is one pitfall I come across frequently:

10. Naming only a primary beneficiary
“Most people just think they’re going to make their spouse beneficiary, but don’t take into account the spouse might predecease them,” Friedman says. “It’s conceivable that something would happen to you and your spouse together.”

Blatt says he even sees cases where people fail to name any beneficiaries. When there is no living beneficiary, the life insurance benefit typically goes into the estate and is subject to probate. That leads to two complications. One, heirs might face a long wait to get the money. Two, the life insurance proceeds, which normally would be protected from creditors, can now be open to creditors’ claims.

Advisers recommend naming secondary and final beneficiaries. If the primary beneficiary dies before you do, then the money passes to the secondary beneficiary. If the secondary beneficiary has passed away when you die, then the death benefit goes to the final beneficiary.

You can see that the fix here is pretty simple: name a contingent beneficiary.

It takes up just one line on an application…

But that simple designation avoids pretty severe complications.

You need a team of advisors

As a life insurance salesperson, my job is to get you the best underwriting.

But the legal, financial, tax, and social ramifications of a policy are of equal importance.

For that reason I advise every client to put together a team of advisors so we can work together and make sure that your coverage is just the way it should be.

Do you have a team of professionals advising you? If so, how has it worked out for you? If not, what has been the trouble in putting one together?