Naming beneficiaries should be easy, right? You just think about who you would want to pass the proceeds of a life insurance policy to, and jot their name on the dotted line.
In theory it is, but in practice, there are a number of pitfalls that can complicate the receipt of insurance benefits. (The U.S. Supreme Court case with an ex-wife and a current wife battling over life insurance proceeds should serve as a helpful reminder.) As such, this post will highlight a few of these potential problems
Inconsistencies between will and policy – While your last will and testament may designate an adult child or other representative to receive insurance proceeds, it may not matter if someone different is named as a beneficiary on your policy. Because of this, it is instrumental that your policy and will be consistent.
Being vague about details – It is unhelpful (especially in a will) to designate benefits to a group of people (e.g. leaving benefits to children) without specifying the amounts and percentages each person should receive. There is nothing wrong with dividing such property and even setting a distribution schedule.
Relying on a single beneficiary – It is natural to name one person to receive insurance benefits, but what if something happens to the person? When there is no beneficiary, the benefit is subject to be divided by the probate court. Also it may be not be protected from creditors. To avoid this problem, naming an alternate beneficiary is prudent.
For additional information or advice about beneficiaries, an experienced estate planning attorney can help.
Source: FoxBusiness.com, Naming life insurance beneficiaries: 10 ways to screw it up, May 22, 2013