The Life Insurance Part of Your Estate Plan – Who Gets the Money?
The person named as the beneficiary on a life insurance policy is the one expected to get the money paid on life insurance when the insured person dies. Everyone knows that.
Trouble starts when no claim is made. The insurance companies do not keep track of who dies. If no claim is made, then the company ends up with the money.
Another potential problem occurs when the wrong person is named as the beneficiary. For example, the insured owner of a policy divorces and forgets to remove their former spouse as the beneficiary. Who gets the money? The former wife is the named beneficiary, so she ends up with the death benefit and the widow (wife number two) gets nothing.
What if there is no named beneficiary because the named beneficiary dies before the insured owner? If there is no named beneficiary, it is necessary to look to the laws of the state in which the decedent was a resident to determine who is entitled to the money.
What happens when a young person is named as the beneficiary? The funds will be distributed to their parents or guardians if they are under age eighteen. Will the money still be there when they reach eighteen or will it have disappeared, having been spent by the adult? Consider handing $100,000 in life insurance benefits to an eighteen year old. Most young people lack the skills to handle money until they reach their mid to late twenties. A better plan may be to have the insurance held in a Trust to be managed by a responsible person, until the young beneficiary reaches age 25.
If you own life insurance, you may want to check with the company to see that you have the right beneficiary named.
******************** UPCOMING SEMINAR ********************
Free public seminar – Thursday, June 2, 2016 at 10:00 a.m. and 2:00 p.m.
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