Top 5 Mistakes When Naming Beneficiaries of Insurance Policies

When it comes to life insurance or retirement accounts, naming a beneficiary is one of the most important decisions you’ll make. But many people unintentionally make critical mistakes that can create legal confusion, delays in payouts—or worse, accidentally leave loved ones out.

Here are the top 5 mistakes to avoid when naming beneficiaries of insurance policies:

1. Not Updating After Life Changes

Life changes—like marriage, divorce, the birth of a child, or the death of a loved one—should always prompt a review of your beneficiary designations.
Mistake: Keeping an ex-spouse or deceased individual listed.
Fix: Review your designations annually or after any major life event.

2. Naming Minors Without a Custodian

Children under 18 cannot legally receive insurance payouts directly.
Mistake: Listing a minor without naming a guardian or setting up a trust.
Fix: Set up a custodial account or trust and name an adult you trust to manage the funds until the child comes of age.

3. Failing to Name a Contingent Beneficiary

If your primary beneficiary passes away before you and there’s no contingent (backup) listed, your payout may go to your estate—leading to probate.
Mistake: Leaving the contingent beneficiary section blank.
Fix: Always name at least one backup beneficiary to avoid probate delays.

4. Using Vague or Generic Terms

Ambiguity can create legal disputes.
Mistake: Using terms like “my children” or “my spouse” without naming individuals.
Fix: List each beneficiary by full legal name and relationship to ensure clarity.

5. Overlooking Tax Implications and Estate Plans

Poor coordination with your estate plan can create tax burdens or unintended distributions.
Mistake: Naming your estate or a trust without understanding tax consequences.
Fix: Consult with an estate planning attorney or trust delivery agent to align designations with your financial goals.

✅ Final Thoughts

Don’t let small errors create big headaches for your loved ones. Double-check your beneficiaries regularly and make sure your insurance aligns with your estate planning goals.

Need help ensuring your documents are legally sound and up to date?
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