Most people buy life insurance, name a beneficiary, and then… never think about it again. It’s understandable — once the policy is in place, it’s easy to feel like the job is done. But here’s the hard truth: Outdated beneficiary designations are one of the most common and costly life insurance mistakes families make. In this article, we want to walk you through why keeping your beneficiaries current is so important, what can go wrong when they’re not, and how easy it is to fix.
What Is a Beneficiary Designation?
When you purchase a life insurance policy, you name one or more beneficiaries — the people (or entities) who will receive the death benefit when you pass away. This seems simple, but the important thing to understand is that your beneficiary designation typically overrides your will. That means even if your will says your spouse should receive everything, if your ex-spouse is still named as the beneficiary on your life insurance policy, the insurance company will pay your ex-spouse. This happens far more often than people realize.
Life Events That Should Trigger a Beneficiary Review
- Marriage or remarriage
- Divorce or legal separation
- The birth or adoption of a child or grandchild
- The death of a named beneficiary
- A child reaches adulthood (you may want to name them directly rather than through a trust)
- A significant change in your relationship with a named beneficiary
- Moving to a new state (estate laws vary)
Primary vs. Contingent Beneficiaries: Know the Difference
Your primary beneficiary is the first in line to receive the death benefit. Your contingent beneficiary (also called a secondary beneficiary) receives the benefit if the primary beneficiary has already passed away or cannot be located. Many people forget to name a contingent beneficiary altogether — which can result in the death benefit going through probate if something happens to the primary beneficiary. Naming both is a simple step that protects your family from unnecessary delays and legal complications.
Naming Minor Children as Beneficiaries
This is a common mistake: naming a young child directly as a beneficiary. Insurance companies cannot pay life insurance proceeds directly to a minor. If your child is under 18 (or 21 in some states), the funds will likely be frozen until a court appoints a legal guardian or trustee to manage the money. This can take time and money and cause real hardship for your family. Better options include naming a trust on behalf of your children, or naming your spouse as primary and your children as contingent beneficiaries with provisions for their care.
How to Update Your Beneficiaries
The process is usually straightforward. Contact your insurance company or agent and request a change of beneficiary form. Fill it out completely and accurately — include full legal names, Social Security numbers, dates of birth, and their relationship to you. Submit and confirm. Keep a copy for your records and make sure your family knows where to find it. If you have multiple policies (employer-sponsored group life, individual term, whole life, annuities), you’ll need to update each one separately.
Make It Part of Your Annual Review
We recommend reviewing your beneficiary designations every year — or any time a major life event occurs. It’s a five-minute task that can save your family enormous stress and financial hardship during an already difficult time. At John Scott Insurance Agency, we make this easy. When you come in for an annual policy review, we’ll walk through your beneficiary designations on every policy we manage for you. If you haven’t had a review recently — or if life has changed since you first set up your policy — please give us a call. There’s no cost, no obligation, and it just might be the most important call you make this month.