Saturday, October 29, 2011

Top 10 Life Insurance Mistakes

Top 10 Life Insurance Mistakes

Here is a list of the top ten mistakes people make with regard to their life insurance policies:

1.     The Insured’s Estate Has Been Named Beneficiary.  This would require a probate proceeding, when one of the goals of life insurance is to avoid the hassle of probate.  With named beneficiaries (i.e., not the estate of the insured), the life insurance proceeds pass outside probate.

2.     The Policy Has No Named Contingent Beneficiaries.  If the primary beneficiary predeceases the insured, the next default beneficiary is usually the estate – and that means probate is necessary.

3.     Minors Or Other Impaired Persons Have Been Named Beneficiaries.  If young children are in line for life insurance money, it usually means a court has to supervise the process and administration of the funds.  That can be avoided with proper planning.  If someone is receiving Social Security Supplemental Income benefits (SSI), the benefits will cease if life insurance proceeds are payable directly to him or her.  Proper planning can avoid such an unfortunate result.

4.     The Beneficiary Language Is Wrong Or Unclear.  Estate planning attorneys run into circumstances all the time where the beneficiary designation does not match the insured’s intentions.

5.     Family Needs Are Not Adequately Addressed.  It used to be that a million dollar insurance policy felt like it was enough to take care of family needs in the event of the breadwinner’s death.  For many, that is not nearly enough anymore.

6.     The Wrong Ownership Was Chosen For The Problem To Be Solved.  Most people choose to own their life insurance policies personally.  That can be a mistake in certain business situations, or where there are family estate tax issues.

7.     The Ownership Chosen Creates An Income Tax Problem. Sometimes having a policy owned by a third party can create an unintended income tax problem.

8.     Section 101(J) Requirements Have Been Neglected For A Business Policy.  In 2006, Congress created new rules for business-related life policies.  Careful guidance is needed to be sure business policies are structured properly.

9.     Buy-Sell Funding Policies Have Not Been Properly Reviewed.  Business owners sometimes use life insurance to help make sure the business will continue after an owner’s death.  Even where a plan has been put in place, failure to update it can have disastrous consequences for the owners and their families.

10.  Policies Have Not Been Reviewed After Divorce (Or Other Life Event).  People sometimes forget to remove an ex-spouse as beneficiary under a life insurance policy.  They also sometimes forget that their divorce papers require them to use existing life insurance policies in certain ways.

If you have not done so recently, we strongly recommend that you review your existing life insurance policies with your insurance representative, and/or call our office at (813) 265-0004 and we will be happy to set up an appointment to review your policies for one or more of these mistakes.