Will My Spouse Get My Life Insurance Benefit?
You purchase a life insurance policy to provide financial security for your family. You are attracted to the guarantees of the product, and to the financial strength of the carrier. You think through the amount needed, and budget for the premium payments.
You live a long, productive life, and then your final day on this planet finally comes. All arrangements are executed, and your estate is settled. But then, BIG PROBLEM: your spouse does not get the money! What happened?
Here are some possibilities. All of them have to do with errors made by the insured/owner. The good news is that they can all be avoided with proper foresight and policy management.
Insurance companies are extremely diligent in sending out premium due notices. They even keep records of all the notices sent. They will also send out a number of lapse notices when the policy is in danger. These notices can even be sent to a third-party to make sure they are received.
Yet, people get busy, and the premium notices can fall to the bottom of the pile. Eventually, the time allotted for reinstatement runs out.
No beneficiary update
Unfortunately for many couples, their marriage ends in divorce. Then again, many divorced people remarry. What has to happen then? A change in the beneficiary of the existing life insurance policy from the old spouse to the new spouse. What will happen if this change is not made? The former spouse can get the money.
It is important to note that state laws, such as community property, can affect this outcome. Be sure to consult with an attorney.
No collateral assignment
Life insurance is often obtained to secure a business loan. Under these circumstances, the benefit should be assigned to the bank – the bank should not be named as beneficiary. If the bank is named as beneficiary, it could end up with more benefit than to which it is entitled.
At that point the lawyers will have to fight it out. This adversity could be avoided simply by filling out a form so the lender will receive only the amount of the loan outstanding at the time of death.
Are you certain that the current beneficiary designation on your policy is correct?