One’s first thought is to name a person as a beneficiary so they immediately get a payout in the event of your death to help with arrangements. As with all good intentions, this might not be the best. Here are the facts:

• Death benefits are not automatically paid out from a life insurance policy. 

• Naming the beneficiary matters.

• Minors cannot receive a payout; in some states, the age is 18 and in others, it is 21.

• If the death occurred during the first 2 years known as the “contestability period” the payout can be reduced or denied.

• If the cause of death is homicide, suspected suicide in the first 2 years of the policy, death occurred during illegal or criminal activity, or the insured omitted risky activities such as skydiving or smoking, on the application, the payout can be delayed or denied based on the results of the investigation. 

Let’s address the first fact. In our previous blog, we listed steps to collect insurance funds, here is the link https://www.hollysimpsonlawfirm.com/blog one must first find the beneficiary and file a claim. Usually, the payout arrives in two weeks, but most funeral services are held within the first ten days of death. If the services are being paid by an insurance policy, waiting on the payout can create some problems in laying your loved one to rest. 

FAQs

Naming a beneficiary matters. We often get the question, “Can I name a funeral home as the beneficiary so my funeral cost will be covered?” This seems like a logical action plan, but the answer is no. Funeral homes are disallowed by law in most areas to be the beneficiary because the cost can vary and one may change locations.  We recommend talking with your Insurance Agent and inquiring about a Final Expense Policy. 

Should one get pre-paid funeral arrangements? Yes, this is very helpful to your family members and it ensures you will have the service you want. 

Can I name my Trust as the beneficiary? Yes, we recommend that life insurance proceeds be paid to a trust, not directly to a beneficiary. This way, the life insurance proceeds are protected from lawsuits, creditors, and even a divorce that a beneficiary may be involved with at the time they collect the funds. 

Can I name my grandchildren as beneficiaries? It depends. Insurance companies will not allow a minor to receive life insurance benefits directly until they reach the age of majority—in some states, it’s 18, and in others, it’s 21. This is why you should never name a minor child as a life insurance beneficiary, even as a backup to the primary beneficiary. Rather than naming a minor as the beneficiary, it’s often better to set up a trust to receive the proceeds. In that case, the proceeds are paid into the trust, and whoever is named as trustee will collect the insurance proceeds and manage the funds for the child’s benefit until he or she comes of age. Moreover, within the terms of the trust, you can also spell out exactly how you’d like the trustee to manage the money for the child and even how the child can use the funds once they’ve reached adulthood. 

Should I speak with my estate planning provider so my Insurance policies complement my estate plan? Yes! Please contact us for a consultation to determine the best options for passing on your life insurance benefits and other assets to your children. We are here to help!

This article is a service of Simpson Law Firm. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. We offer an Estate Planning session, during which you will get more financially organized than you’ve ever been before and we will assist you to make all the best choices for the people you love. You can begin by contacting us here, https://www.hollysimpsonlawfirm.com/contact-us or calling us at 803-764-9555 and one of our friendly client service assistants will help you set up your consultation!