Many Texas residents have a life insurance policy, whether it is through their employer or a policy that they have taken out on their own, life insurance is an important way to make sure that our loved ones have some financial security after we are gone.
Regardless of the sum involved in a life insurance policy, it is important to make sure all your ducks are in a row when you choose a beneficiary. There are a lot of ways that the ultimate goals of taking out the life insurance policy can be properly served, and just as many ways in which the final outcome might not go as planned.
For example, many people may name their spouse as a beneficiary on a life insurance policy but later change their mind and want to name their children or they may divorce and want to name their new spouse. A lot of people think you can do this through a will that leaves everything to that newly chosen beneficiary, however, a will does not control what happens to life insurance proceeds so the payment will still be made to whoever is named on the policy itself, even if there is a contrary provision in the will.
Similiarly, sometimes people will name what is called a “class” on their life insurance policy, such as “all my children” or “my neices and nephews”. This means that when the policy is to be paid out, the insurance company will conduct a length and costly search to make sure that all living children are given a portion of the policy. And since some Texas residents may have children that they are unaware of or who they are no longer in contact with, this may create some confusion about the true intent of the gift. Instead, it is best to list specific individuals along with identifying information such as addresses, birth dates, and social security numbers.
Source:Fox Business, “Naming Life Insurance Beneficiaries: 10 Ways to Screw up,” Barbara Marquand, May 22, 2013