You can probably guess that life insurance is one of the most effective means of providing for your family’s future once you are no longer with them. However, it is not very rare to get some problems connected with life insurance policies due to their large number of possible variations, basic and additional, as the policyholder does not change the beneficiary information timely. Common modern American legal problems include, for instance, being a husband and learning that the life insurance policy has not been updated to include the wife as a beneficiary. This can result in a range of legal, financial, and emotional problems that have been seen to occur.
Nevertheless, failing to revise your life insurance policy implies certain consequences, which will be discussed in this article, along with legal aspects and how to avoid them.
1. Essentials Of Designating The Beneficiary On A Life Insurance Policy
When a person decides to buy a life insurance policy, they then have to make one of the most important choices: selecting a beneficiary. This person or entity will be getting the money when you die, which is why it’s called a death benefit. The beneficiary is a spouse, child, relative, trust or charity organization, or anybody the client will choose to name. A policyholder can replace the beneficiary at any time of the policy as long as that policy is still active.
However, many people have to learn lessons on updating their beneficiary information as they do not consider such information frequently. This may occur for many reasons, including remarriage, divorce, or perhaps the couple simply forgot to change this policy. In the event the life insurance policy is not modified to show the wife as the beneficiary, the death benefit may end up being paid to whoever the policy maker intended.
2. Consequences That Accompany Failing to Update the Beneficiary Details
Under the law of the United States, it has been held that the beneficiary designation which is made with the insurance company is normally followed. This implies that in the event the policyholder has died and have not updated the details showing the new beneficiary, the pay out of the death benefits will be done to the indicated figure or authority.
For example, the policyholder selects his or her ex-spouse as a beneficiary upon divorce but re-married, the insurer does not update the policy, in case the policyholder dies, then the money goes to the ex-spouse. This may prove to be an immense legal problem for the surviving spouse as well as the members of the family.
They are covered by state laws but in some instances and to some extent. For example, a minority of the states employs what is known as ‘’revocation-on-divorce’’ statutes, which annul the former spouse beneficiary status upon divorce. However, this is not the truth in all the states, and the law may not apply if the policy-holder remarries yet the beneficiary’s details are not updated.
3. Penalties for the Surviving Spouse as Regards to Money Matters
That is the reason that can lead to severe financial consequences for the life insurance policy’s surviving spouse; the life insurance beneficiary may not always be updated. As discussed above, life insurance is designed mainly for providing funds for major expenses like, house, children education or other basic needs. This is so particularly when the death benefit is paid to some other party, then the surviving spouse may lack the basic necessities of life.
Also, the question of who should be entitled to the death benefit may trigger hefty cases and lawsuits. In any case where surviving spouse feels that he or she is entitled to the death benefit, then he or she will have to litigate the issue of the beneficiary. This can put pressure on one’s emotional status and most importantly the financial stability as this is usually an awkward time.
4. How to Check Whether the Life Insurance Beneficiary Is Right
Thus, one should review and update his life insurance policy periodically to ensure the policy reaches the right person upon the insured’s demise and to minimize heartbreak that is likely to crop up as a result of failure to update the beneficiary. Here are some steps to help ensure your beneficiary designations are accurate: Here are some steps to help ensure your beneficiary designations are accurate:
a. Review Your Policy Annually: It’s also advisable to take time and go through your life insurance policy annually, at least. Now it is important that one must review the beneficiary form and make the required changes if any are needed.
b. Update After Major Life Events: Other reasons for review is any major life event that can happen in a person’s life including marriage, divorce, birth of children, and death of a close one they would usually consider purchasing life insurance. Occasions where some things become priorities and those you would like to protect can all be altered.
c. Communicate with Your Insurance Agent: If you cannot remember how you can change the beneficiary designation then you should consult your insurance agent or the insurance company. They can help you when choosing them and avoid distortions in the understanding of your preferences and wishes when issuing a policy.
d. Consider Naming Contingent Beneficiaries: However, it is recommended to name three levels of beneficiaries, that is, the first-degree beneficiary and the second-degree beneficiaries. They shall be the ones who are to take the benefits in the event that the main beneficiary is unable to do so. This can add another degree of security and also will allow the executor to do what you want without any confusion.
e. Keep Your Documents Updated: Please ensure your existing legal papers like wills and trusts are matched with your life insurance policy. False documents cause confusion as to your property and lead to disagreements over your estate.
5. What if the Beneficiary Was Not Put as the Wife
In as much as you may find yourself in a position whereby the life insurance policy has yet to be amended to accommodate the wife as the beneficiary, the best thing to do is to act fast. Here are some steps to take: Here are some steps to take:
a. Contact the Insurance Company: The first action that has to be taken is to call the life insurance company and explain the circumstances. They can inform you about that particular beneficiary and what can be done in regard to it.
b. Seek Legal Advice: If, for example, the policyholder is already dead and the amount of the death benefit is in controversy, it is necessary to consult an attorney. An estate or insurance lawyer will be the right person to turn to in case of a legal issue.
c. Consider Mediation: It should also be noted that different fights regarding the death benefit may be settled in a mediated manner. This is often less confrontational and more economical to the parties reaching the particular deal as compared to other means.
d. Explore All Legal Options: In some cases, legal strategies can be used to contest the asset’s beneficiary designation. This could include stating that the designation was made under pressure or that the policyholder’s actual intent was not stated in the forms.