Has Life Changed? It May Be Time to Update Beneficiary Designations

 Situation: One of the most important decisions the owner of a life insurance policy makes is deciding who to name as the beneficiary. On the surface, a beneficiary designation may seem simple and straightforward, but they have the potential to be complex. Unfortunately, many people do not put much thought into the identification of a beneficiary when setting up their life insurance policies, even though some of the most common errors are made with respect to the naming of beneficiaries. While this error can cause unnecessary taxes, the most serious result of this mistake is that the death benefit proceeds may pass to unintended individuals.

Beneficiary designations should be considered carefully and reviewed regularly. Consequently, when performing a policy review, in addition to reviewing the performance and market competitiveness of the policy. You should also review errors in beneficiary designations. This Counselor’s Corner includes a discussion of three situations that may arise in life insurance policy designations that create tax problems. In addition, we have attached a checklist to help you in your review of beneficiary designations as well as a guide on drafting life insurance beneficiary designations.

Solution: There are several tax considerations that can arise when establishing or changing a beneficiary designation. The following are three of the most commonly occurring situations and suggestions for correction