Life insurance beneficiary mistakes are among the most common—and costly—planning errors. Because beneficiary designations control who receives the death benefit, even small oversights can result in delays, disputes, or benefits being paid to the wrong person.
Failing to Name a Beneficiary
One of the most basic mistakes is not naming a beneficiary at all. When this happens:
- Proceeds may be paid to the insured’s estate
- Probate may be required
- Creditors may gain access to funds
This defeats one of the primary advantages of life insurance.
Not Updating Beneficiaries After Life Changes
Major life events often require beneficiary updates, including:
- Marriage or divorce
- Birth or adoption of children
- Death of a beneficiary
Failing to update designations can result in benefits being paid to an ex-spouse or unintended party.
Assuming a Will Overrides the Policy
Many people assume their will controls life insurance proceeds. In most cases:
- Beneficiary designations override wills
- Courts enforce the policy contract
- Verbal intentions are ignored
Relying on a will instead of updating the policy is a common error.
Naming Minor Children Directly
Minors generally cannot receive life insurance proceeds directly. Naming them outright can lead to:
- Court-appointed guardians
- Delayed access to funds
- Loss of control over distribution
Trusts or custodial arrangements are usually more appropriate.
Using Vague or Incomplete Descriptions
Designations such as “my children” or “my heirs” can be problematic, especially if:
- Family structure changes
- Children are from multiple relationships
- Legal definitions are unclear
Specific legal names reduce ambiguity.
Forgetting Contingent Beneficiaries
Without contingent beneficiaries:
- Proceeds may default to the estate
- Probate may be required
- Distribution may be delayed
Contingents provide essential backup protection.
Incorrect Percentage Allocations
Errors such as:
- Percentages that do not total 100 percent
- Conflicting allocation instructions
Can delay claim processing or trigger disputes among beneficiaries.
Overlooking Divorce or Court Orders
Divorce decrees or court orders may:
- Require specific beneficiaries
- Restrict changes
- Mandate minimum coverage
Ignoring these requirements can lead to legal challenges.
Not Confirming Beneficiary Changes
Submitting a change request does not guarantee it was processed. Failing to:
- Confirm insurer acceptance
- Keep updated records
Can result in outdated designations remaining in force.
Key Takeaways
Common life insurance beneficiary mistakes include failing to update designations, naming minors improperly, relying on wills, and overlooking contingencies. Regular reviews and clear, specific beneficiary designations help ensure life insurance proceeds are paid efficiently and according to intent.
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