One of the unfortunate realities surrounding life insurance is that people often purchase policies, then file them away for safekeeping. They continue to make the required premium payments, but the policies themselves can disappear for years at a time. When that happens, there’s a real danger that the information contained in the policy won’t be reviewed. And it really needs to be, particularly in regard to beneficiary information.
As the years pass, people’s circumstances change. Not just yours, but also those of the beneficiaries that you’ve named in your life insurance policy perhaps many years ago. That can lead to unintended consequences!
Here are some examples…
Death of a Beneficiary
It’s unfortunate, but sometimes you end up outliving your beneficiary. This can happen even in the case of people within your own immediate family. For example your spouse could pass away, or even one of your children. If they are named in your life insurance policy as beneficiaries, their passing could create complications.
This possibility is generally even more pronounced when the named beneficiaries include parents or siblings. Parents in particular typically die before their children, and if you have named your parents as beneficiaries, that designation will have to change upon their deaths.
Divorce
This is probably an even more common reason for changes in beneficiary information. Either you or one or more of your beneficiaries could go through a divorce, which may change the entire dynamic of the benefit distribution under the life insurance policy.
This is complicated by the fact that divorce decrees often require the continued maintenance of life insurance for the benefit of an ex-spouse, at least for a specified time frame. But when that time frame ends, the ex-spouse might continue to remain on your policy unnecessarily.
Problems can also arise with the divorce of a beneficiary. For example, let’s say that you name one of your adult children as a beneficiary to your life insurance at a certain point in time. The child was married at the time, and you were well satisfied with his or her spouse.
But divorce and remarriage to a different spouse – one with whom you don’t get along with even a little – causes you to cut off any type of financial benefit to that child. But you might forget about the life insurance policy sitting on the shelf collecting dust. But the policy continues to name that child – and by default the disagreeable spouse – as a beneficiary of the policy.
Unless you periodically update beneficiary information in your policy, the benefits could quite likely go to and unintended party.
Changes of Name or Address
Another consequence of divorce is a name change, particularly for women. If your life insurance policy doesn’t update to reflect the name change of a beneficiary, it could make it very difficult for the person to collect benefits upon your death. Any legal costs involved in the process, such as retaining legal counsel, would of course reduce the net benefit payable to the beneficiary. A simple update of your insurance policy, reflecting the name change, would make this entirely unnecessary.
The same is true when it comes to addresses. The average person changes address every few years. This can make locating a beneficiary difficult in a situation where there are no other beneficiaries living close to you who can verify the location of the remote beneficiary.
This becomes infinitely more complicated in the event that a beneficiary moves to a different country. This is becoming a more common occurrence as the economy and population become more global in scope. A lack of updated information in your life insurance policy could make a beneficiary impossible to locate.
Changes in Relationship Status
Sad as it is to say, relationships can fall into disfavor. For example, while you were very close with a certain person who you named as a beneficiary in a life insurance policy that you took years ago, the relationship could sour.
You may go years without having any communication with that person, and may have even vowed to cut off all contact. But if you die without changing the beneficiary information on your life insurance policy, that person will collect the death benefit despite the deterioration or disappearance of the relationship.
Changes in Your Circumstances
The need for life insurance is actually a dynamic process. That means that the amount of coverage you need, as well as the people you want to provide for, does actually change along with your life’s circumstances.
For example, let’s say that you’re married, and you have children who have reached adulthood. Though you may have named both your spouse and your children as equal beneficiaries under your life insurance policy, it may be time for a change. Since your children are now adults, they are no longer directly dependent upon your financial support. But your spouse still is.
Unless you change your beneficiary information, to reflect a greater percentage of the death benefit to your spouse, the distribution will continue the way it was initially established.
The problem with updating beneficiary information can easily be overcome if you work with an attentive life insurance agent. He will check in with you periodically to see what your life changes are, and reflect those changes in your policy. He may even be aware that certain changes are about to occur in your life, and recommend beneficiary updates as necessary.
That’s exactly the way that we work. We promise to work with you through the entire life insurance process. That includes application, approval, renewal, and regular updating of information. Give us a call and put our services to work for you. It won’t cost you anything extra to do so.
