How to Keep Your Life Insurance Up to Date
Life insurance is a crucial component of financial planning, but it’s not a set-it-and-forget-it affair. This article offers expert advice on maintaining an up-to-date life insurance policy. Learn practical tips to ensure your coverage aligns with your current needs and protects your loved ones effectively.
- Align Policy with Estate Plan
- Review Beneficiaries After Life Changes
- Keep Designation Form Accessible
- Use Dental Checkups as Review Reminders
Align Policy with Estate Plan
As both an attorney and CPA who has specialized in estate planning for over four decades, I’ve witnessed the ripple effects of outdated beneficiary designations on life insurance policies. One critical tip most people overlook: verify your policy’s transfer-on-death provisions against your broader estate plan.
I recently worked with a client whose outdated beneficiary designation would have directed his $2 million policy into his probate estate rather than his carefully structured trust. This simple oversight would have negated his asset protection planning and exposed those funds to creditors and unnecessary taxation.
Life insurance exists outside your will or trust unless properly aligned with them. When reviewing designations, consider not just who receives the proceeds but how they receive them – particularly for minor children or beneficiaries with special needs who may lose government benefits if they directly inherit large sums.
For policies over $500,000, consider using a standalone Irrevocable Life Insurance Trust (ILIT) as beneficiary rather than individuals. This approach provides professional management of proceeds and can offer significant tax advantages while preventing beneficiaries from squandering their inheritance.
Jeffrey Burr
Owner, The Law Frm of Jeffrey Burr
Review Beneficiaries After Life Changes
One important tip for reviewing and updating beneficiary designations on a life insurance policy is to ensure that your beneficiary information reflects your current life circumstances. Life events such as marriage, divorce, the birth of children, the death of a loved one, or changes in your business or financial situation can all impact who should receive your life insurance benefits. It’s essential to review your beneficiary designations regularly to make sure they align with your current wishes.
To update your beneficiary information, contact your insurance provider and request an updated beneficiary form. Don’t just focus on the primary beneficiary—it’s equally important to ensure your contingent (secondary) beneficiaries are correct as well. For example, if your spouse is the primary beneficiary and they pass away before you, your contingent beneficiary, such as a child or sibling, will receive the policy’s proceeds. Having a secondary beneficiary in place can avoid confusion and ensure that your wishes are followed.
Updating beneficiary information regularly is crucial because it ensures your life insurance benefits are distributed according to your wishes, avoiding delays, disputes, or unintended consequences after your passing. If beneficiary information is outdated, several issues could arise:
1. Assets going to the wrong person: For instance, if you’ve divorced but never updated your life insurance beneficiary, your ex-spouse could still be the recipient of the benefits, potentially creating family conflict or legal issues.
2. Probate complications: If your primary beneficiary is no longer alive or cannot be found, the estate may go into probate, causing unnecessary delays and costs in distributing the proceeds.
3. Failing to meet financial goals: Your life insurance may be part of your broader estate plan or financial strategy. If your beneficiary information is outdated, your intended goals—like ensuring your children’s education or supporting a business partner—could be compromised.
I recommend reviewing your life insurance policy at least once a year or after major life changes. This proactive approach helps ensure your policy still serves its intended purpose of providing financial protection to your loved ones, whether family, business partners, or others. Always keep a record of your updated beneficiary information and share it with your trusted advisors or family members to prevent misunderstandings.
Rob Roughley
Senior Advisor | Commercial & Personal Lines Broker, Roughley Insurance Brokers Ltd.
Keep Designation Form Accessible
After helping countless clients through beneficiary issues, I always tell them to keep a copy of their current designation form at home with their other important documents. Just last month, this saved one of my clients from major headaches when they needed to check if their new grandchild had been added correctly as a contingent beneficiary.
Gregory Rozdeba
CEO, Dundas Wealth
Use Dental Checkups as Review Reminders
As a dentist who owns a practice with a 50+ year history, I’ve seen how life transitions affect families. While I’m not an insurance specialist, I’ve unfortunately witnessed patients’ families struggle with outdated beneficiary designations after unexpected losses.
Dental procedures often trigger important life discussions. During lengthy implant consultations, I recommend patients use their appointment reminder as a prompt to review all their important designations annually, including life insurance beneficiaries.
One practical tip: create a digital calendar reminder that coincides with your annual dental checkup. After we examine your teeth each year at Crown Point Family Dentistry, take 15 minutes that same day to verify your policy information is current. Just as preventive dentistry helps avoid painful emergencies, this simple habit prevents financial complications for your loved ones.
I had a patient who updated all her documents after getting divorced except her life insurance policy. Years later, her children experienced unnecessary complications following her passing – a situation that could have been prevented with a simple annual review system.
Dr. Chris Cerasaro DMD
Owner, Crown Point Family Dentistry