When was the last time you updated your life insurance coverage or the beneficiaries designated to receive the proceeds of your policy(ies)? It’s hard enough to sit down and purchase coverage in the first place. Once we have that coverage, many people stuff the policy in a drawer and forget about it.
There’s a danger in that decision though; any time a major life event such as marriage, divorce, birth of a child, change of employment status or a death in the family occurs, it’s the right time to consider updating your life insurance coverage and beneficiaries.
An upcoming wedding, for example, is an ideal time to consider if you need to change your life insurance coverage – or purchase your first policy – and revise or add a beneficiary.
After a Wedding or Divorce
When two lives, or two families, become one, a new house and new name aren’t the only possible changes. Life insurance policies are legal documents that could be impacted by major life events like a wedding, divorce or birth / addition of a new child. Parents and couples may assume that their life insurance benefits will automatically be paid to their children, including those that have now become their children through marriage.
The reality is that life insurance benefits are only paid to those individuals named as beneficiaries on a policy or, when there are no beneficiaries named – to the estate of the person who has passed.
In the extremely unlikely event that two spouses die simultaneously and each has listed the other as their primary beneficiary, life insurance benefits pass to the estate.”If the couple’s children are named as beneficiaries, they will receive any applicable benefits. If they are not named, they will not receive benefits,” says Annise Henson, manager of voluntary life insurance products for Unum.
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At Open Enrollment
Another optimal time to review life insurance coverage including named beneficiaries is at open enrollment time for your benefits every year, which is usually around October or November. “Be sure to review each policy separately for your named beneficiaries every year,” says Henson. “Beneficiary changes for one product may not apply to other products.”
When considering updating beneficiaries, it is also a good opportunity to review the amount of life insurance you have, to ensure it is both adequate and appropriate for your life situation. Ideally, you should have enough life insurance to cover four to six times your salary when you’re in your prime earning years. If you’re nearing retirement, your life insurance needs may be different, so when reviewing beneficiary designations, it also makes sense to review the amount of life insurance you have for yourself and your spouse and children.
How to Designate Beneficiaries
Once you’ve updated your life insurance, or purchased the coverage for the first time, you’ll need to designate a beneficiary. This can feel ominous but it doesn’t have to be an arduous experience. “When naming beneficiaries, select them as if you were going to die tomorrow and then update them regularly,” advises Henson.
Often, well-meaning individuals intend to change a beneficiary designation on their life insurance policies and then pass away before being able to do so. The result of such an oversight is that proceeds of the insurance policy you worked hard to keep in force end up going to the listed beneficiaries, which, if they haven’t been updated in a while, may not be who you want to receive them. If you have additional children after you purchase the policy, but don’t update the beneficiary on your policy to include those children, the benefits won’t be paid out to them. As a result, it’s important to keep your policy updated regularly – at every life event or once a year, whatever is sooner.
Whether you’re getting married, having children, or raising your family, purchasing life insurance can help give you peace of mind and financial protection through your working years, but only if you view the policy annually and update your beneficiaries in a timely manner.