Have You Checked Your Beneficiaries Lately?

This is probably one of the saddest blogs I’ve ever written because it’s a true story and could easily have been avoided. Let me introduce you to the four characters in this story: Bob; Bob’s wife, Sally; Bob and Sally’s two children; and Bob’s ex-wife, Lisa. *

Our story begins when Sally calls into their life insurance company to see how long until Bob’s life insurance policy pays out. You see, Bob died a few weeks earlier, was the primary breadwinner, and Sally needs the money to provide for herself and their two children. Unfortunately, Bob never changed the beneficiary of his life insurance policy from Lisa to Sally. Now, Lisa is getting $400,000 tax free while Sally and their two children are left in a difficult financial situation because Bob did not check and change beneficiaries.

I recently told this story during a financial presentation, and the looks on the audience members’ faces were priceless. Many of them confessed to being in the same situation — they assumed their life insurance proceeds would pass through their will, but it does not.

You see, items like life insurance, IRAs, 401(k)s and pensions pass outside of the will because they have a contract. On that contract, you indicate your beneficiary or beneficiaries, and you can change them as you desire as long as that change is allowed by state and federal regulations. At the time of your death, your designated beneficiaries receive the money, so make sure who is designated reflect your wishes. 

One of USAA’s core advice beliefs is to review your plan annually and with major life events. Part of that annual review includes reviewing your beneficiary designations. A recent marriage, divorce or birth could all warrant a change in your beneficiary designation.  

I doubt Bob wanted his life insurance proceeds to go to his ex-wife, leaving Sally and their two children in financial hardship. However, because he failed to change his beneficiary when he remarried, that was the result.

So, my only action item for you today is to sit down and look at your beneficiary designations to make sure they reflect your wishes.  While some states have laws that automatically remove the spouse as beneficiary on a life insurance policy upon a divorce being final, these states are few so make sure to check for yourself.

*Names have been changed to protect the innocent.

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