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3 mistakes when people choose life insurance beneficiaries

On Behalf of | Dec 19, 2018 | Estate Planning |

A Minnesota man made headlines when he faked his own death for the life insurance payment. Law enforcement arrested him abroad and brought him back to the United States to stand trial.

While scams like this tend to make headlines, most people use their life insurance policies correctly and assign proper beneficiaries. However, Minnesota residents make plenty of mistakes when it comes to naming these beneficiaries. These mistakes can compromise the payout, so it is vital to remain aware of them.

1. Assuming a will overrides the life insurance policy

Many people tend to believe a will is the most important document when it comes to an estate plan. However, your life insurance policy is a contract. Legal authorities will follow the guidelines stated in the policy. In the event you want to change your beneficiary, then you need to contact the life insurance company and not just change the will.

2. Naming a minor to receive benefits

Many people want to make their children beneficiaries of their life insurance policies. However, if your children are not yet 18, then the money will not go to them. Instead, it will go to a conservator who retains the funds for a fee until the kids turn 18. The proper route to take is to set up a trust with an adult you trust. This allows the children to benefit from the money while they are still young, and they can access the funds more easily when they become adults.

3. Giving children money without guidelines

Some life insurance policies pay out substantially. Many 18-year-olds are not responsible with such a huge influx of money at that age. You do not want to give your kids more than they can handle, and a trust can continue to help you in this endeavor. For example, the policy can state that children receive a certain amount of money at specific milestones.