When you purchase a life insurance policy, you must name the person, persons or entity (e.g. trust) that will receive the death benefit of your policy upon your death. The amount of unclaimed death benefits in the U.S. is staggering. In an article titled “How to Find Lost Life Insurance Policies” in the February issue of ConsumerReports.Org, it is estimated that at least one billion dollars of life insurance death benefits are waiting to be claimed by policy beneficiaries. We addressed the topic of unclaimed benefits in an earlier post, Will Your Life Insurance Benefits go Unclaimed?, so we won’t dwell on that aspect here.
What I do want to address, however, is how to prevent this from happening. The first way is to designate your beneficiary wisely. The purpose of a well-drafted beneficiary designation for a life insurance policy is to provide information that will allow both:
And to make sure your beneficiaries won’t suffer the fate of the unclaimed benefits mentioned above, a clear, concise designation allows the insurance company to pay the claim settlement quicker than a designation that leaves room for interpretation.
It’s important that the beneficiary designation coordinate with your overall estate plan. Keep in mind that beneficiary designations usually supersede instructions in a Will as to how the benefit is to be distributed.
Bear in mind that major life changes might occur, such as the birth of a child, a divorce, the death of a beneficiary that could affect your original intent. This is why it is important to review beneficiary designations regularly with your agent/broker, hopefully in an annual policy review, and make sure they are still appropriate.
Remember the following tips for naming beneficiaries:
So, name your beneficiaries wisely to ensure that life insurance policy you purchase will serve the purpose you intended – to pay a benefit to those you leave behind.