The Three Most Common Life Insurance Mistakes and How to Avoid Them
Mistake 1: YOU NAMED YOUR ESTATE AS BENEFICIARY
The Problem: If the beneficiary you've named dies before you and there is no back-up beneficiary, or if you've deliberately named your estate as beneficiary, the proceeds (in most states) may be doomed to needless state inheritance taxes or have a higher state death tax rate than if the proceeds were payable to a named beneficiary. It also assures, that even if the policy would otherwise not have been included in your estate for federal estate tax purposes, it will be now. This mistake also makes it certain that creditors have full access to the life insurance proceeds. And by naming your estate as your beneficiary, you guarantee that the precious dollars you wanted to go to a loved one will be subjected to expense and potential aggravation and delay of probate.
Mistake 2: YOU FAILED TO NAME AT LEAST 2 BACK-UP BENEFICIARIES
The Problem: If the beneficiary you named dies before you do (even if only minutes before you do), and you don't make a later change, the proceeds will be paid to your estate. This needlessly subjects your estate to all of the problems of Mistake 1 just as if you named your estate as your life insurance beneficiary.
Mistake 3: YOU FAILED TO CHECK YOUR POLICIES AT LEAST EVERY THREE YEARS
The Problem: To the surprise, shock and dismay of many, all too often after someone's death, it's found that life insurance proceeds are payable to the insured's ex-spouse or others whom the insured would not have wanted to receive the proceeds. Also, children born after a policy was purchased are often inadvertently omitted. This occurs because it's easy to forget who you named as the beneficiary of your life insurance 5 or 10 years ago. Forgoing a once every 3 years checkup also makes it likely that you may not have the best possible type of policy to meet your present needs.