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When to Update Your Life Insurance Beneficiaries

Certainly, a big part of putting together any life insurance plan is choosing who the beneficiary will be. Depending on the purpose of the policy, that person or entity could be a spouse, child, business partner or charitable organization, just to name a few.

And when we set up our life insurance plans, just like any other type of financial planning situation, we don't do it in a vacuum. In other words, it happens during just one point in time — and as we all know well, life continuously goes on.

Just like with any other type of life stage planning, life insurance policies need to be reviewed regularly in order to make sure that the beneficiary you chose at a particular point in time is still the right choice today. Otherwise, it could cause some major issues when the time comes to pass on these assets. (For related reading, see: Who Should Be Your Life Insurance Beneficiary?)

That Was Then, This Is Now

Think about it for a minute. Proceeds that are payable to an already-deceased relative, a former spouse or partner, or to all but just one of your children. When life changes, it means that the beneficiary designations on life insurance policies — as well as other plans like IRAs and 401(k) accounts — should be reviewed and changed if the person or entity that you chose, while appropriate at one time, is no longer the best fit to be beneficiary. And, if you think that the named beneficiary will simply do what's right and hand the money over to the person who you really want to have it, think again. (For related reading, see: Can IRAs Be Held Jointly by Spouses?)

Here are some of the most common life changes that might require you to take a look at your insurance policies:

  • Birth or adoption of a child or grandchildIf you are planning for the birth or adoption of a child or a grandchild, you should take a look at your life insurance policy beneficiary form and see how it is worded. In some cases, if you are naming children or grandchildren, it may simply state that you are naming "all children" or "all grandchildren." In other cases, though, it could name the kids or grandkids individually. Therefore, if you don't want to unintentionally disinherit someone, it's important to review your policy before the child arrives. Otherwise, someone could be left out.
  • Change in marital status. A change in marital or partnership status should also be a trigger for you to take a look at your life insurance policy. It's important to note that in some states, if you are getting divorced, you may not be able to change the beneficiary designation until the divorce is actually final. In some cases, it may also be required that the original beneficiary consent to his or her name being removed from the policy. (For related reading, see: How Do I List Multiple Beneficiaries for IRA and Life Insurance?
  • Your named beneficiary predeceases you. You may have named someone as your beneficiary who ends up predeceasing you. In this case, you might have also named a contingent beneficiary. This is someone who will be next in line to receive the policy's funds. However, if you really do not intend for this person to receive all of the funds, you may want to take another look at your plan and update it.
  • Other situations. There may be other situations that will spur you to review your policy — you might just simply change your mind or have a falling out with your original choice for the beneficiary. In other cases, various needs may have changed. 

Remember when you're reviewing your life insurance policies to look at both individual and group plans. This is because if you have a life insurance group plan through your employer, often these plans are forgotten about — but they could be worth a nice amount of money for a beneficiary, too.

When to Check Your Plans

Just as you do with your investments, it is important to go through and review your insurance coverage on a regular basis. In most cases, this should occur at least once per year — or even more often if a major life event has taken place. 

Meeting regularly with your insurance advisor can help ensure that your plans are all in place for covering those you intend to with the proper amount of benefit going forward, as well as for making sure that those you no longer intend to provide coverage for aren't listed on your policies. This is not just good financial planning, it also can help to prevent family misunderstandings in the future. (For related reading, see: How Annuities Can Boost Your Retirement Confidence.)

Brad Cummins is the founder of LocalLifeAgents, a Columbus, Ohio-based firm of independent insurance agents.