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Life Insurance, Marriage and Kids

Shutterstock_94700359Chances are, you went out and made sure you got additional life insurance when you got married. That’s a great choice to help protect the new life you are building together. You may have happily written in your new spouse as your sole beneficiary on your policy, but you might be surprised to learn that this might not be the wisest choice.

Although it is a horrifying thought, should an accident happen in which you and your spouse perished, your life insurance proceeds could be tied up in court – leaving your families to pay funeral expenses out of pocket. It’s wise to name secondary and tertiary beneficiaries to protect against this situation, even if the policy has a default succession of beneficiaries. Keep in mind the likelihood of each of those beneficiaries outliving each other. If one beneficiary is deceased, your insurance carrier will move on to the next one listed. The life insurance policy only pays the benefit to those you listed; it doesn’t dictate how the funds should be spent. If you have distinct ideas about that, you will need to set up a trust. The proceeds can be paid to the trust and terms of use or timing of access to the funds can be controlled that way.   

Before you rush out to list your children, stepchildren or grandchildren on your policy, consider this – if they are minors, the policy will not be paid directly to them without you having set up a trust (likewise for your own children). In the case of stepchildren, your insurance carrier may treat them the same as your natural children, however you may want to verify this and add them if that is not the case. Be sure to be as specific as possible when listing your beneficiaries, rather than notating “my spouse” or “my children.”

 If you work at a company that provides some life insurance coverage (typically one or two times your annual salary), you must make sure you update your beneficiaries after you get married (or divorced). Your life insurance policy is a legal contract and the carrier has to carry out your instructions to the letter. That means if you put anyone down on your policy besides your spouse, that is the person who your death benefit is going to (barring unusual situations like minor children, as stated above). You can imagine what a difficult situation it can be when an ex-spouse is still on the policy. It’s a good idea to get in the habit of double-checking your beneficiaries on your work policies during open enrollment.

Another great habit is to create an Annual Insurance Review at the start of the year. As your income increases or you have new assets, you may want to consider increasing your coverage. If times have become tough and your policy no longer fits into your budget, you can discuss lowering your coverage amount to a figure that is more economical.

Last, but not least, make sure your beneficiaries know that you have policies and give them instructions on how to find the policy information. While your carrier will set up a search, you would likely prefer your loved ones are able to access the funds in a quick manner.

Insurance is tempting to buy and forget. Be sure to revisit it regularly and update it along with the changes in your life. Marriage, divorce, birth or adoption of a child, a new job and the purchase of a new home are all events that should trigger you to review your policy in addition to your Annual Insurance Review.


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