Life insurance is quite popular in the United States. According to the Insurance Information Institute, an estimated six in every 10 people in the country are covered by some type of life insurance policy.
Some individuals have held their policy for years, even decades. Many of these people may not even remember the exact details of their plan – they just pay their monthly premium and move on. That can be a problem.
The designated beneficiary
For many policyholders, the purpose of buying life insurance is to ensure a loved one is cared for long into the future. But things change. People divorce, find new partners, have children or see their wealth fluctuate.
A life insurance policy should routinely be reviewed in order to account for these changes – even if your estate plan is already robust. That is because beneficiary designations supersede whatever is written in a will.
An outdated life insurance policy could result in an unintended benefits payout.
This problem is commonly seen among divorcees. One partner buys a life insurance policy and lists their spouse as the beneficiary. They later split up and the policyholder remarries, maybe even has a new child. Yet they forget to update the beneficiary on the plan.
This means, upon that person’s death, the benefits will immediately go to the former spouse. Their current partner, and potentially children, won’t receive any piece of it.
Reviewing and planning
When situations like those described above occur, loved ones have little recourse. The law does not consider the context of the situation. It is only concerned about whose name is listed as the beneficiary.
If you have taken the time to carefully craft an estate plan – one that ensures your partner, children and loved ones are taken care of financially – this type of simple oversight can be very damaging. By reviewing your life insurance policy regularly, you can catch this type of simple mistake and make a correction.
Then, you can be confident your life insurance plan actually reflects your life and your intentions.