Life Insurance policies are an important part of estate planning for many individuals. It is a great way to provide financial security for your heirs when you pass away. However, as a Tampa Bay Will Lawyer, I must warn that there are several issues that people don’t properly consider when buying insurance policies. Here is what you should know before executing your life insurance application.
1) Your Will does not trump the policy
Your life insurance policy is a contract, which means that the money will be paid directly to the beneficiary listed on your policy. The money does not have to go through probate and therefore your Will does not have any effect on the payment of these funds (unless you forget to name a beneficiary or the person predeceases you).
2) It needs to be reviewed as your life changes
You would not believe how many times we see life insurance money left to an ex-spouse! It is important to regularly review your beneficiaries and update them accordingly, especially if you are divorced or experience any other major life change.
3) You should not name a minor child as beneficiary
Life insurance companies will not pay money directly to a minor child. If you name a minor, the court will have to appoint a conservator which is a costly, legal process. The better course of action is to set up a trust for the child’s benefit and name the trust as the beneficiary on the policy.
4) Being beneficiary could disqualify your loved one from government benefits
If you have a child with disabilities that depends on government benefits, the funds received from the life insurance policy could disqualify them from receiving the benefits they rely on. If they receive a gift or inheritance over $2,000 they could be disqualified from Social Security Income and Medicaid. Instead, you should meet with your estate planning attorney to set up a special needs trust that will benefit your child without compromising their benefits.
5) You should always name a secondary beneficiary
If you only name one beneficiary and they predecease you, the proceeds from your life insurance will go to your estate. This means the money will have to go through probate court which will open the funds to creditors and be a more time consuming process. Naming a secondary beneficiary will eliminate the threat of this happening.
6) Tell your beneficiary about the policy
Make sure that your beneficiary not only knows that you have the policy but they know where and how to find it once that time comes. This will prevent stress on your loved ones or the risk that they do not receive the funds at all.
If you have questions about how your life insurance policy fits into your overall estate plan, call us today at 813-438-8503. We can help you make sure that all your affairs are in order and give you the peace of mind that your loved ones are taken care of once you are gone.