No one likes having to deal with insurance companies, just like no one wants to think about death. However, taking out a life insurance policy is something that more of us should be doing. These policies can offer some protection to your family or other dependents in the event of your death. Just make sure to avoid these four common mistakes.
Naming Your Estate As A Beneficiary
In many states, if you name your estate as your beneficiary, then the proceeds paid out will be reduced by state inheritance taxes. This is usually charged at a higher rate than the tax on any proceeds that are paid directly to a named beneficiary. What’s more, your creditors will have complete access to any proceeds generated by your life insurance. In spite of the fact that most states have laws on the books that are designed to prevent creditors from doing this, these only apply to proceeds that are paid to a named beneficiary.
By putting your estate as your beneficiary, you will be reducing the amount of money that is ultimately paid out to your dependents. Instead, much of the money will be eaten up by taxes.
Failing To Nominate At Least Two Backup Beneficiaries
If the beneficiary you have named in your policy dies before you do and there isn’t a named backup beneficiary, the proceeds will be paid straight to your estate. This then introduces all of the problems outlined above – payouts will be distributed as if you had named the estate as your beneficiary.
The best way of avoiding this situation is to name two backup beneficiaries. Having two backups for each person who is named in your policy will ensure that none of your payouts will default to your estate and everything will ultimately be paid to a known beneficiary.
Failing To Check Your Policy Every Three Years
People’s circumstances change throughout their lives – the plans that you make for your death at one point in your life might not apply in another 10 years. It is, therefore, important that you review your life insurance policy every few years to make sure that all the information is still correct. Crucially, you want to be certain that your assets are not set to be paid out to someone who is no longer in your life.
Checking up on your policy every three years also gives you the chance to make sure that the policy is still the best one available for your needs. It is always worth checking out different providers and revisiting providers who you might have considered in the past. You can use this online tool from Best Choice Life Insurance to compare life insurance rates from various providers and find the best one for you.
Getting The Wrong Type Of Insurance
Lots of people underestimate just how many different types of insurance there are out there. Even within the field of life insurance, there are a variety of insurance types for you to choose from. Picking the wrong one can have dire consequences for you and your estate in the event of your death.
The best way of avoiding this problem is to thoroughly research your available options beforehand – see what’s out there and then work out which option is best suited to your specific needs. If you are able to check with a professional or someone who has experience with life insurance policies, this is worth doing.
The purpose of life insurance is to provide you and your family with peace of mind and a guarantee that they will have some degree of financial protection in the event of your death. However, if you rush out to buy the first policy you come across, you are setting yourself up for disaster. Make sure that you avoid the four mistakes above and you should be fine.