Family First Life is an insurance marketing organization that provides life insurance, mortgage protection, fixed indexed annuities, and final expense coverage to those who qualify. In the following article, Family First Life reviews the key reasons why naming a beneficiary is one of the most important decisions to make when deciding on a life insurance plan.
A life insurance policy that lacks named beneficiaries runs the risk of becoming effectively useless. At its heart, life insurance is protecting an individual’s loved ones from financial struggles. It can also be an effective partner in creating wealth management goals and planning for a comfortable future.
Family First Life notes that even comparatively small insurance policies can go a long way in helping family members when they need help the most.
Yes, life insurance is a choice. For the 50% or so of Americans who report having some form of life insurance, naming beneficiaries is essential in order to reap the benefits of their plan. Here are a few key reasons why.
Payouts Tend to be Big
Family First Life reviews that in 2021, total claims and benefits tied to insurance for beneficiaries were around $791 billion, a $50 billion rise compared to the previous year.
This comes in the form of everything from disability, death benefits, and a range of other payout forms according to the Insurance Information Institute.
Control is at Stake
Without life insurance beneficiaries, significant amounts of money may be directed to people and places that were not necessarily the policyholder’s choice. Options become very limited.
Frequently, when there are no named beneficiaries, death proceeds are released in accordance with a ranked preference as opposed to a certain amount going to specific people, such as spouses and children, outlined by a policy.
Family First Life reviews that another possible result is entire benefits defaulting to the estate of the deceased rather than to individuals.
Outdated Information is Dangerous
Life insurance policyholders have the ability to update beneficiaries as they wish. This begins when a policy is first obtained, but it shouldn’t stop there. More often than not, beneficiaries change multiple times during the course of a life insurance policy.
Family First Life states that the main beneficiaries outlined when one first begins a policy may not be appropriate beneficiaries at some point in the future. For example, children who are born after a life insurance policy is initiated will later need to be named as beneficiaries in order to benefit.
The same approach goes for any significant life event, such as the death of a beneficiary or a divorce. In addition, refraining from naming contingent beneficiaries, those who would receive benefits if a primary beneficiary is ineligible to receive assets or passes away, further complicates policy payouts.
And Yes, Children Can Be Named
Family First Life reviews how some tend to believe that children cannot be named as life insurance beneficiaries.
While there are some policies that forbid this, other states allow such designations under the rules of the Uniform Transfers to Minors Act, which require a custodian who manages the beneficiary account (until the child reaches 18 or 21 years old) to be named as well.
Beneficiary Alternatives May Not Be the Best Course of Action
Not naming typical life insurance beneficiaries — family members, friends, spouses, children — and going with alternative recipients may backfire. If an estate is named a sole beneficiary, creditors can easily access such assets and even the estate itself.
Some are tempted to name pets as life insurance beneficiaries, but benefit trusts are usually closed when the pet dies.
Heirs May Not Receive the Amount Intended
Without any beneficiaries, Family First Life reviews that primary or contingent life insurance policies are often paid out to an estate and that gets complicated based on what’s outlined by one’s will, other financial activity, and liabilities.
That could mean that intended heirs may actually end up getting less ofthe death benefit payout than what was outlined in the policy.
It Can Create a Huge Financial Blow
Family First Life reviews the numerous ways life insurance policies can help beneficiaries, both in the short and long term. It’s one of the best ways to help loved ones after one’s death in ways that are not outlined in a will.
Not naming beneficiaries makes it extremely difficult to determine who should receive funds, and this almost always leads to long delays in death benefit payments.
Common assets such as a 401(k) or other retirement balances usually get stuck in probate, with a court having to figure out how to distribute the money left in the account. This means it can take several years for loved ones to get any form of access to assets.
Family First Life reviews that this is particularly difficult when there are debts to be paid or if a family struggles to afford a funeral, which could cost as much as $20,000. College payments for children may also be unfulfilled.
Overall, a family may end up struggling, unable to live in the way that a policyholder had wanted them to, leading to extreme financial troubles that no one expected to be burdened with.
