WHAT’S IN YOUR DESK DRAWER?

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Did you throw your insurance policies in a desk drawer or a file cabinet years ago and haven’t bothered to review them for years? When it comes to life insurance planning, this can be an extremely costly mistake, and may mean our loved ones will have to do with less or go without.

Here are six common mistakes to avoid:

1. The Insured’s estate is named as beneficiary.
   Naming your estate as the beneficiary may expose the proceeds to probate, or to creditors or unnecessary taxes. It may also result in claims by unintended beneficiaries.
   Recommended Action: Review beneficiary designations of all life insurance policies, including group coverage, to ensure they are current and accurately name the organizations or persons you want.
2. Only one beneficiary is named. If the named beneficiary of your policies dies before you, proceeds will be paid to your estate. Recommended Action: Name two contingent beneficiaries and two backup guardians in wills, trusts, and qualified plans. Consider contingent trustees and executors, as well.
3. Your policy no longer matches the initial problem. You now have the wrong type of coverage. A short-term product may run out when it’s needed the most. An essential benefit of buying life insurance is peace of mind. The emotional comfort derived from owning life insurance is lost, if adequate coverage is not there when it’s needed most. Recommended Action: Review your coverage periodically to make sure the amount of insurance you own is appropriate for your present circumstances, objectives, and needs. There are many types of policies in the marketplace. There may be one or more better suited to your present situation.
4. Your ex-spouse is the beneficiary or children are not named. Far too many policies still name ex-spouses (or others the insured would not have wanted) to receive the proceeds. Children born after a policy was purchased are often omitted. Sometimes, named beneficiaries are long deceased. Recommended Action: Every three years, have your insurance company provide an “in-force” illustration and verify your current beneficiaries.
5. Policy proceeds are payable directly to minor children. In most cases, state law will tie up proceeds to minors, making it expensive and time-consuming to get the money to your intended beneficiaries. Insurance companies will not pay proceeds to a minor. A custodian or guardian will have to be court-appointed. Recommended Action: Most often, the best solution is to set up a trust. It is efficient, inexpensive, and a much safer and surer way to provide financial security.
6. The insurance policy is owned by the insured. Estate tax laws change and current issues have not been resolved by Congress. Policies owned by the insured may be included in the estate for estate tax purposes, exposing proceeds to unnecessary taxes. Recommended Action: Stay apprised of what happens in Congress. It may require changes to type of coverage, beneficiary arrangements, ownership arrangements, or amount of coverage you own.

For a no-obligation consultation, feel free to contact Marc Haberman.

Serving clients in San Jose, Silicon Valley, San Francisco Bay Area & Nationwide