Understanding Life Insurance
Introduction
Obtaining life insurance is normally an easy process. One generally opts for the level of coverage he or she desires, chooses the period of coverage and then applies for coverage until acceptance.
The following are some tips in avoiding pitfalls when shopping for this kind of insurance protection:
Indicating Your “Estate” as the Beneficiary
When one completes a life insurance application, some might insert “”my estate”” on the relevant part of the form. However, it is important to actually write in a name otherwise, with the estate as the beneficiary, one’s heirs will not have easy and immediate access to any payout because the funds will first go through the probate process.
Indicating a Minor as the Beneficiary
Another potential problem is in naming one’s minor child as the beneficiary. If one dies prior to the minor coming of age, the funds will be mandated to be under the control of a court-appointed guardian until such a time as the child grows into adulthood. In this case it is highly recommended that a trust be set up, with the child named as a beneficiary, followed by the trust itself named as the beneficiary on the insurance forms.
Periodical Reviewing of Policies
It is important to keep in mind that in the event of major life changes, such as a marriage, birth or divorce, to review one’s insurance policy so as to avoid issues such as forgetting to name a new spousal beneficiary, as opposed to one’s ex partner. (In this case, if a male policyholder dies, the ex-wife will receive the insurance policy payout.)