When you have any type of life insurance policy on your life, you need to name your beneficiaries at the time when you purchase the policy. The beneficiary is the person or persons who will receive the death benefit at the time when you die. In other words, if you have a $100,000 term life insurance policy, the beneficiary is the person who will be paid the $100,000 upon your death.
Many people name a beneficiary when they originally make a purchase of a life insurance policy, but their circumstances may change over the course of their life. For example, a couple might get divorced or someone who was listed as a beneficiary might pass away. Since life insurance policies can last for decades, or even until the day you die depending upon whether you have a term life plan or a whole life plan, it is essential that you keep your beneficiary information updated as your circumstances change.
Why it is Important to Update Your Beneficiaries on Your Policy
It is important to update the information on your life insurance policy about your beneficiaries because the policy must be paid out to whoever the named beneficiary is. This is true under all circumstances.
So, for example, consider a situation where you put your husband or wife on your policy as your beneficiary. If you subsequently divorce, your spouse will remain on the policy unless and until you make a change and name a new beneficiary. This is true regardless of whether you have a divorce decree and regardless of what division of property you agreed to. The beneficiary on a life insurance policy is NOT going to change as a result of any other written document or agreement unless you change the policy.
Other legal documents such as contracts and even wills are not going to have the power to make a change to who your beneficiary is on your policy. If you write in your will, for example, that you want to leave everything to your son but your wife’s name is on the insurance policy then your wife will get the insurance payout no matter what the will says.
Since you need to make the change on your life insurance policy directly, you’ll need to remember to call your insurer any time your circumstances shift so someone needs to be added or taken off as a beneficiary. For example, if your intended beneficiary dies, you will
need to make a change and name someone new. If you have a new child but you originally listed only your current two children as a beneficiary on your policy, you’ll need to go back and add your new son or daughter.
Fortunately, changing your beneficiary is easy and you can update the designated beneficiary multiple times over the course of owning your life insurance policy. The key is to actually remember to act and to call up your insurer as soon as a change needs to be made so your life insurance policy is always in place to protect those you care about.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.