Changing Your Life Insurance Beneficiary? 3 Things You Need to Do
Before his wife Susan died, David let her take care of all of the family’s paperwork. She was a wonderful partner…she had a good job, handled their finances, tracked their retirement accounts, and she kept up with their life insurance paperwork…or so he thought. When Susan wife passed away, he filed a claim for life insurance benefits through the policy she had bought at work. It was denied. The life insurance adjuster told David on the phone that Susan had never properly named him as a beneficiary, and the life insurance money would have to be paid to her estate, and in turn, go through the probate system costing him money. David had no idea there was a problem. Had his family done an annual insurance review and checked on a few simple things, there never would have been a problem. Here are 3 things you can do to make sure your family’s life insurance paperwork is up to date and in order.
1. Review every life insurance policy you have to confirm the beneficiary designation procedures.
Every life insurance plan or policy has a specific procedure that must be followed to properly designate one or more beneficiaries. Failure to follow the procedure typically voids any designation that was made. You must get your policies and read the fine print to make sure you know the procedures to declare who you want to get the life insurance benefits when you die.
Most people buy private life insurance policies or buy into a group life plan through an employer or organization. If you have an individual insurance policy, simply call your agent and ask for a duplicate policy. If you have life coverage under a group, you can still get a copy of the certificate that includes the beneficiary designation procedures. If you participate in an employer group life insurance policy (an employee benefit plan covered by the federal ERISA law), you usually request a copy of the employer’s ERISA plan through the human resources office. If you bought your coverage though a non-employer group (like a professional association, an fraternal group, etc.), you likely have to ask the insurance company for a copy of the certificate or life policy.
Usually, life insurance policies have sections that are clearly titled so you will know where to look to find out how to change your beneficiary. Unfortunately, some will not, or worse, they will have other language that is not in a section which was clearly marked about beneficiary designations. You have to read the entire policy to make sure you are aware of all of the procedures you must follow.
2. Follow the beneficiary designation procedures to the letter. No exceptions!
Once you have identified the plan or policy’s procedures to designate a beneficiary, you must do exactly what they say. As the saying goes, “dot all of the i’s and cross all of the t’s.” The life insurance company follows their policy and so must you.
Under some states’ law, getting close may be enough, but do not risk that. Do what the life insurance policy says, and you will save your beneficiaries a lot of time and money. If you do not follow the procedures, the life benefits likely will go to the executor of your estate and then have to pass through probate. If you tried to name multiple beneficiaries, but screwed it up, that could impact whether any of them get the money, because state probate laws or the people involved in administering your estate may give the money to someone else. Having life insurance proceeds pass through probate defeats one of the key purposes of using life insurance as part of your estate planning, and it adds expenses that your survivors should never have to handle.
For example, if you call the life insurance company’s office and someone tells you that you can designate your beneficiary over the phone despite the fact that the policy says you must do it in writing on a certain form, do not believe them. Follow the written words in your life insurance policy. What one of their employees tells you on the phone will never matter. If their employee did not write down what you said, no one will ever know you made the call. Remember, you will be dead and will not be able to testify about what you did. If you follow the policy’s procedures, you can never go wrong.
This is particularly true if you have life insurance under an employer’s ERISA plan. Unlike some state laws that allow a little “wiggle room,” ERISA law is very clear that a life plan administrator does not have to honor an improper beneficiary designation. This commonly crops up when someone is divorced, and they make a mistake trying to designate their new spouse as beneficiary. If the coverage is through an ERISA group life plan, the former spouse will get the life insurance benefits if the person who died did not get the entire designation procedure right.
3. Let your beneficiaries know you named them.
People often do everything perfectly when it comes to naming their beneficiary. Yet, if your beneficiary or beneficiaries do not know you named them to receive the life insurance proceeds, they will never know they can make a claim. In our life insurance law practice, you would be amazed at how often we hear that someone never told the survivor about the insurance or that they were named as a life insurance beneficiary.
Most beneficiary designation forms only ask for a name. The insurance company has no way to find the people you name unless you provide them with addresses and phone numbers. However, letting your beneficiaries know that they were named will allow them to reach out to the life insurance company after you die to make the claim.
Sit down with your spouse and anyone you have named as a beneficiary each year and conduct an insurance review. Not only do you want to make sure you have a sufficient amount of life insurance, but over time, you may want to change who you want designated to receive life insurance benefits. Children age, people get divorced and remarried, and life changes. Reviewing how much insurance you have and who you have designated to be paid when you died is an important part of financial planning.
TAKEAWAY: Doing a few simple things during your annual insurance review can avoid costly problems when someone dies. Properly designating your beneficiary or beneficiaries on your life insurance policy will help the people that survive you deal with the insurance company. If you do everything correctly, your beneficiaries will never need to call life insurance lawyers like us to fix a problem.
Do you have a life insurance payment that has been delayed or denied? Call us at (866) 282-5260 to speak to one of our experienced life insurance attorneys.