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You buy life insurance not for yourself but to financially protect your loved ones. You hope to not die until you’re old and you’ve lived a full life, but preparing for the unexpected in life is always better than leaving your loved ones to pick up the pieces. Term life insurance can do just that.

You may think that assigning someone to be your life insurance beneficiary is a no-brainer, but choosing a beneficiary can be a little tricky. We’re here to help you avoid mistakes and to make sure your loved ones aren’t left with a mess.

10 Beneficiary Mistakes to Avoid When Buying Life Insurance

1) Choosing a Minor as a Beneficiary

If you are a parent with young children, know that life insurance companies will not pay your life insurance policy proceeds directly to your minor children. Instead of naming a minor child as a beneficiary, set up a trust that benefits the child and name the trust as the beneficiary of the policy. Or you can name a reliable adult who will act on behalf of the minor’s benefit.

» Learn more: Can a Minor Be a Beneficiary?

2) Giving Money Without Conditions

If you name your young adult children as beneficiaries without putting any conditions in place, problems could arise. For example, say a life insurance policy owner dies unexpectedly and leaves his 18-year-old son with millions in death benefit money. This situation might be very overwhelming for a son as he probably wouldn’t know what to do with it all. Setting up a trust that states how much money and when it should be given would be wise.

3) Believing a Will Trumps the Policy

Don’t think that updating your will is good enough. If your will and policy name different beneficiaries, the life insurance money will go to whomever is listed on the policy. A life insurance policy is a contract and supersedes a will.

If you rely completely on your will, then all that time you spent looking at life insurance quotes was largely wasted. Let your policy do the majority of the talking. Your will does not override the beneficiary listing on your life insurance policy.

4) Not Reviewing Your Policy

Our lives are not stagnant. Marriage, divorce, deaths, new babies, and other major life events will bring the need to change your policy beneficiaries and could lead to the need of a new life insurance policy altogether.

Review your life insurance policy after life events, or every other year or so. An awful mistake to make would be to forget to remove your ex-spouse as your beneficiary leaving your new spouse with nothing when you die.

Unless you want your adult children to squabble after your death, be sure to update your life insurance policy beneficiary designations as you have more children.

» Learn more: When Should You Review Your Life Insurance Policy?

5) Making a Dependent Ineligible for Government Benefits

If you have a lifelong dependent, such as a child with special needs, it would be wise not to list that individual as a beneficiary. Anyone who receives a gift or inheritance of more than $2,000 is disqualified for government benefits such as Supplement Security Income (SSI) and Medicaid. Instead, set up a special needs trust and name the trust as the beneficiary. Keep in mind that the main reason you’ve purchased  life insurance is to make sure your loved ones are cared for once you’re gone. This unintentional mistake could be a costly one for beneficiaries who rely on government benefits.

6) Not Being Specific

Instead of simply saying you want “my children” to be the beneficiaries, list their names, Social Security numbers, and addresses. Your beneficiaries will get the payout much quicker because the insurance company will not have to search for them. Also be sure to specify how you want the payout divided. Does each beneficiary get the same amount? Or do different beneficiaries get different percentages?

7) Overlooking Your Spouse in a Community-Property State

If you choose to name someone other than your spouse as a beneficiary, some states require your spouse to sign a form waiving rights to the money. The community-property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

8) Falling Into a Tax-Trap

If your life insurance policy states three different people as the owner, the insured, and the beneficiary, then the death benefit could count as a taxable gift. For example, if a wife owns a life insurance policy on her husband and the adult daughter is the beneficiary, then technically the wife is gifting her daughter the policy proceeds if her husband dies. The person who makes the gift (in this case, the wife) will be subject to a tax if it exceeds federal limits. This situation could be remedied if the husband owned his own policy, naming his daughter as the beneficiary. However, if the couple lives in a community-property state, the wife would need to sign a waiver (as discussed earlier).

9) Naming Only a Primary Beneficiary

People often make the mistake of only naming their spouse as a beneficiary, but what happens if the spouse dies before them? Or what if the insured and beneficiary die at the same time? If no living beneficiary exists, the life insurance proceeds will go into the estate and is subject to probate (this situation is a court-controlled process of wrapping up a deceased person’s affairs and proving the identities of individuals entitled to the deceased’s property). Probate can be a very long process. Another complication to having no living beneficiaries would be creditors. Normally life insurance proceeds are protected from creditors, but if there are no living beneficiaries, then the proceeds can be open to creditor’s claims.

» Learn more: What Is a Life Insurance Contingent Beneficiary?

10) Keeping Quiet

Do not keep your life insurance policy a secret. Be sure to talk with your family and beneficiaries about the policy and where they can find it in the event of your death. The life insurance company is not going to automatically know when you die and immediately send your loved ones the policy money. The beneficiaries need to claim the benefit, but if they don’t know a policy exists, all of your planning to protect them will have been in vain.

» Learn more: Talking to Your Family About Your Life Insurance

The most important mistake to avoid? Don’t keep your life insurance policy a secret.

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If you have any questions, we’re happy to help. Check out our Q&A page that is full of information you may have always been wondering about. If you are in the process of thinking about getting life insurance quotes, our instant online term insurance quoting tool lets you see prices anonymously. We do not ask for your contact information, so you do not have to worry about getting calls or emails from strangers.

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About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius

Writer, Editor, and Co-host of Quotacy's Q&A Fridays

Natasha is the content manager and editor for Quotacy. She has been in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. When not at work, she's probably studying and working toward her Chartered Life Underwriter (CLU) designation while throwing a tennis ball for her pitbull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.