Life insurance policies provide crucial protection in the event of premature death. Without life insurance, surviving dependents can be left wondering how to cover their bills without the deceased person putting the income into a joint checking account.
Anyone purchasing life insurance will need to ensure they have the right amount of cover to fully protect the loved ones left behind – and should consider increasing their policy when taking on new liabilities. But, while it is a good idea to update the death benefit amount in appropriate situations, this is not the most important adjustment a policyholder may need to make.
There is one change definitely It is essential to make it as quickly as possible to avoid major problems that can undermine the entire purpose of life insurance.
This change in life insurance should be made immediately
The one life insurance adjustment everyone should make Immediately It is changing its beneficiaries. This should be done immediately when life circumstances change.
In almost all cases, a life insurance policy will pay out to whoever is listed as a beneficiary – and the policy will be paid out Just Payment to these individuals or entities.
It doesn’t matter if a deceased person’s will says something different if they had written a last will and testament. With limited exceptions, it does not matter if the deceased clearly wanted something different. Anyone designated as a beneficiary will usually receive the funds. This can be a major problem if the policyholder does not change the beneficiary as soon as possible in many situations.
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Suppose, for example, that a policyholder has life insurance and wants to split the death benefit among his children (let’s call them Sam, Tom, and Joe). But, what if another child, Kim, is born and then the policyholder dies? If the policy is not changed before death, Kim will be disqualified and Sam, Tom and Joe will receive all the money. Kim will need to hope her siblings are generous enough to participate voluntarily or she will be left without the money she may need.
Not changing the beneficiary immediately may also be a problem if the person named as beneficiary dies and no secondary beneficiaries are named or If the policyholder has a separation or disagreement with the beneficiary. While some states automatically remove a spouse as a beneficiary after a divorce, that’s not the case everywhere — so an ex-spouse could end up receiving payouts from a life insurance policy if the beneficiary is not changed.
Do not wait to change the beneficiary when required
The moment a policyholder decides he or she needs a different beneficiary, that change must be made to the life insurance policy immediately. No one knows when tragedy will strike, and when it does, it will be a double tragedy if the life insurance policy purchased to provide care for loved ones is not paid out to the right people.
Since this can be difficult to remember, especially for insurance policies purchased years ago, it is a good idea to have a system to help prompt a beneficiary designation review in a timely manner.
This can be as simple as keeping a sticky note in your wallet or other visible place that says “Remember Life Insurance Beneficiary.” This way, when a new child is born, a separation occurs, a remarriage occurs, a child is adopted, or a current beneficiary dies, the policyholder won’t forget to change the beneficiary immediately to protect those they love before it’s too late.
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