Life Insurance Beneficiary
When it is time to select a life insurance beneficiary, most peoplequickly select the first person that comes to mind, usually a spouse or a close friend. 
Unfortunately, beneficiary selection is probably one of the most overlooked, important aspect of life insurance. After all, if you die prematurely, no matter how great the life insurance policy you selected is, who gets the money, really is the ultimate goal of the insurance policy. The following are steps that, we hope, will help you avoid some common mistakes.
How and when to name a beneficiary?
We strongly recommend that you name a beneficiary at the time of application. Particularly, if you will be giving the agent a deposit with your life insurance application. If you later feel you need to modify beneficiary names, those can be easily changed by calling your agent or the insurance company and filling out a simple form. No matter how simple the form is, if you have questions, ask and never assume! beneficiary naming is a very important part of the life insurance application process.
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Name Beneficiaries by Names Not Just Relationship
In other words, don't just say, I want my wife to get all the proceeds. Why? because a wife could also include an ex-wife and in some states even a common law wife. In other words, write the full name of your spouse and his or her relationship to you. Full name includes all fully spelled out middle names. Do not use nicknames. Most insurance companies do not require that you also include a beneficiary's social security number. If the option to include a social security number is available, include it. The more information is included on the beneficiary form, the less of the chance there will be issues at the time of the payout.
Naming a Contingent Beneficiary
You see, in the truck accident example we gave you above, there may have been a different outcome if a contingent beneficiary was included on the application. Essentially, a contingent beneficiary is the one who receive the life insurance proceeds in the invent that all primary beneficiaries died at the same time as the insured (multiple contingent beneficiaries can be named). With a contingent beneficiary, all proceeds go to a person as opposed to the estate and usually are not included in probate. Please note, in some cases where there's no clear evidence as to which beneficiary died first, many states have adopted the Uniform Simultaneous Death Act. Under this legislation, the policy is settled as though the insured survived the beneficiary(ies), and the life insurance proceeds would hence be paid to named contingent beneficiaries, and not the estate of the primary beneficiary (please check with your local legal advisor as laws may change or differ in your state).
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Beneficiaries and Policy Ownership
in most cases, owners of life insurance policies are the same as the insured. As long as a well drafted will is in place and/or a power of attorney has been set, we feel that, in most cases that is OK (although you may want to check with a legal consultant). If you know and trust someone, another good option would be to name that someone the owner of the life insurance policy. Since the owner has full control of the policy, including naming beneficiaries at any time, and beneficiary or insured are incapacitated, then your trusted owner will be able to manage the insurance policy. Please note that the owner has the power to make just about any changes to the policy including taking cash out or it if it is available, name new beneficiaries, change the face amount...
Beneficiaries and Wills
Your will has no jurisdiction! Accounts with beneficiary designations aren't governed by your will. So even if you wrote an ex out of your will eons ago, he or she would still get a share of the life insurance proceeds if you never took him or her out as a beneficiary. Beneficiary changes can be made at any time by the policy owner, be sure to review your policy designations at least once a year and especially after major life events.
What happens if no beneficiaries are named?
It is as horrible as it is simple, the proceeds then go to probate court for distribution. The court then rules on who gets what. The outcome can greatly vary by state. In other words, the state and anyone who feels like contesting the estate, can decide who gets the money. By the time they are finished probating there may not be much money left to probate. At least the lawyers will be OK!
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How about naming a minor as beneficiary?
Naming a minor as a life insurance beneficiary is a very bad idea. In most states, the court must supervise the distribution of money left to kids under 18. This is expensive, slow and not what you want. What can you do if all you want is a minor child to get the money? In most cases, a trust in the child's name should do the trick. Check with your local legal advisor on this. A trust for a minor as beneficiary can also allow you to make more decisions as to how the money is paid out upon your death. As you may know, most minors need much guidance when it comes to spending money. Be careful if you are in a community property state - Arizona, California, Idaho, Nevada, New Mexico, Texas, Washington, or Wisconsin - where your spouse is legally entitled to half of everything (check your own state as these laws constantly change).
Give beneficiaries percentages or dollar amounts?
Let say that you have a $500,000 universal life policy. You want $100,000 to go to child A, $250,000 to child B and $150,000 to child C. Sounds good? Not really! The problem is, many policies and policy owners are very dynamic. What may have started as a $500,000 policy could have been later changed voluntarily by the policy owner or any automatic riders or variations in cash value and interest or any other features in the policy
. What happens if you forgot about the neat beneficiary distribution you set up and five years later you take out of your life insurance cash value a small $5,000 loan. Or what happens if you exercise the terminal illness rider and the insurance policy is now only worth $400,000. The distribution you had selected no longer adds up and the insurance company will not and is not allowed to guess what your decisions would have been, based upon your original designations of benefits. We always recommend that, instead of selecting an amount for each beneficiary, you select a percentage. That way, if the face amount changes, percentages will still be the same.
We hope that this primer on naming beneficiaries is of help to you. Of course, every case is different and it is important to explain your personal circumstances to your advisor or insurance company. Please feel free to contact us with your questions too. As we often say, no matter who you will select as your insurance advisor, always request at least three quotes and ask, ask and ask more questions. Be well.
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