Do you have an insurance policy on your life? If you don’t have a beneficiary named, have you thought about naming someone? This article will look at the benefits of naming a beneficiary.
If you have an insurance policy and have loved ones who depend on you for income, you should designate a beneficiary on your policy. When it comes to distributing your assets after death, one of the most popular ways is writing a Will.
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When a death occurs, there is oftentimes a need for immediate cash. Unfortunately, the deceased might be the primary breadwinner, and the financial institution may freeze their accounts if it’s not joint. Having a Will is excellent; however, there is a legal process to go through before a financial institution makes a payment.
Immediate need for cash
If there is a named beneficiary on your life insurance policy and you die, the proceeds can be paid out within a month if there isn’t a death inquiry. Income continuity will be crucial for your loved ones when you die. Not having to worry about income will give them time to mourn while adjusting to your death.
Insurance Policy Beneficiary
There can be two types of beneficiaries on your life insurance policy: revocable and irrevocable beneficiaries.
- A Revocable beneficiary – can be changed at any time.
- An Irrevocable beneficiary – can only be moved once the named beneficiary gives their consent in writing.
While I fully support the naming of a beneficiary on your policy, you should speak to your Financial Advisor to get the pros and cons. Additionally, you should find out the Life Insurance beneficiary rules of your Insurer.
The Benefits of Naming a Beneficiary
If a beneficiary is not named and there is no Will, letters of administration are required to pay the proceeds. The Insurer needs to get this legal document from the court before paying the proceeds. They need to know that they are paying the proceeds to the right person.
Additionally, even if there is a Will, it must be probated. One way to avoid this delay, which can take a year or more, is simply naming a beneficiary. Once there is a named beneficiary and no investigations are required, the payout time is faster, usually within one month.
Creditor Proof from Your Estate
Twenty years ago, the wife of one of my clients called; she was very angry with her husband, and she didn’t want to have anything to do with him again. She didn’t even want to be a beneficiary of his policy anymore.
So I visited their home, and after completing the change of beneficiary form, the husband escorted me outside and told me to destroy the document. He said, “she is angry and not thinking straight; I want her name on the policy as my beneficiary”.
Two years later, he died, and there was a battle for his estate. However, fortunately, the beneficiary change she wanted was not done, and she received the policy proceeds in two weeks. Even though there was a legal battle for the rest of his estate, the life insurance proceeds weren’t contested because she was named a beneficiary.
The following questions may help you make up your mind about naming a beneficiary. If you died last night:
- Will your loved ones be able to get cash from your bank account?
- How long will your loved ones have to wait for funds to be released?
- How long will the money in your account last them as they wait for the Will to be probated?
- Do you have sufficient money saved to pay off your creditors?
- Are there any loans that are not covered by insurance?
Answering these questions will give you an idea of your family’s situation if you die without leaving an immediate cash source. Naming a beneficiary is easy; all you need to do is complete a designation of beneficiary form.
We hope we were able to open your eyes to the importance of beneficiary designations on your insurance policy. However, every household is unique and has its complexities, so speak to your Financial Advisor to ensure that this is best for you and your family. If you require any assistance feel free to contact us.