What to Expect if You Outlive Your Life Insurance Beneficiary
Failing to update your beneficiary can lead to unintended consequences for the distribution of your life insurance proceeds:
Per Stirpes: If a beneficiary predeceases you, a per Stirpes distribution allows their share to go to their descendants, potentially leading to a complex distribution among multiple heirs.
Per Capita: Without updated beneficiaries, a per capita distribution divides the proceeds equally among surviving beneficiaries, possibly excluding descendants of the deceased beneficiary.
If no beneficiaries are designated, policy proceeds may become part of your estate, subjecting them to estate taxes. This situation can significantly reduce the amount ultimately received by your heirs. Regularly consult with a financial advisor to ensure your beneficiary designations are up-to-date and optimize tax savings, allowing for proceeds to be distributed according to your wishes.
Naming a Contingent Beneficiary
Naming a contingent beneficiary helps keep you in control of how your life insurance proceeds are distributed if the primary beneficiary cannot receive them. To designate a contingent beneficiary, complete the necessary forms with your insurance company, specifying the individual or entity. A contingent beneficiary will receive the proceeds if the primary beneficiary predeceases you or is otherwise unable to claim the benefits, providing an extra layer of security and ensuring your intentions are fulfilled.
Legal Considerations
Legal considerations for life insurance include aligning beneficiaries with your will and estate plan to promote consistency. Using trusts can manage and protect life insurance proceeds, controlling distribution and safeguarding assets. For minors who are beneficiaries, appointing a guardian or establishing a trust allows the funds to be managed until they reach adulthood, ensuring their financial well-being according to your wishes and legal requirements.
Stay Prepared and Protected
Keeping beneficiary designations up to date will ensure that your life insurance benefits are distributed according to your wishes. Life changes such as marriage, divorce, the birth of a child, or the death of a beneficiary can significantly impact your intended distribution. Regularly review and update your policy to align with your current circumstances and goals.
Our agency can help you with life insurance policies and beneficiary designations to protect your loved ones. Call your local agent today to review and update your life insurance policy. We are here to help you avoid potential legal complications and reduce tax liabilities so your loved ones are adequately protected and provided for according to your latest intentions.
