11 common mistakes people make when choosing a life insurance beneficiary

Life insurance is an important investment in life. But when choosing a beneficiary, people sometimes make some common mistakes that may go against your expectations. Here are 10 common mistakes we make when choosing a life insurance beneficiary. Be sure to avoid them.1. Name your minor children as beneficiaries of your life insurance policy

Life insurance can help protect your children’s financial support if one or both parents pass away unexpectedly. However, naming your minor children as beneficiaries is not the best approach because life insurance companies will not pay life insurance benefits directly to minors.

You might think that you can designate a relative to collect the insurance money for your child, but this does not solve the problem. Although parents may be confident that their relative will take good care of their children, this does not guarantee anything because the relative will have 100% autonomy over how to use the money.

If you purchase life insurance for the benefit of a minor child, it is best to create a trust for the benefit of the child and name the trust as the beneficiary of the policy, or designate an adult guardian for the life insurance under the Uniform Transfers to Minor Act.2. The beneficiary is unclear

If your life insurance policy has specific beneficiaries or organizations, or you have ideas about how the funds will be distributed, it is recommended that you put it in writing.

People often make the mistake of not being specific enough when naming beneficiaries. For example, if you have more than one child or more than one marriage, be specific about the beneficiaries’ names and SSNs to avoid confusion.

It’s worth noting that generally you can list your children as your beneficiaries directly, but in some states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), your spouse must sign a form to waive their right to be a beneficiary before you can list your children as beneficiaries.3. No conditions for certain beneficiaries

When naming multiple beneficiaries, be specific about who will get what. Do you want the money to be divided equally or in certain proportions? This needs to be determined in advance. Do you want the money to be used only for education investment or for something else? This also needs to be determined in advance.