Northwestern Mutual: Life insurance is a great way to protect loved ones financially in case something happens to you. People often choose to get life insurance or add to existing coverage when going through big life events like getting married, buying a home, having kids, or even growing a business. Some life insurance policies, like whole life insurance, also have additional benefits that a policyowner can use during their life. But it’s important to review life insurance regularly. And there are a number of times throughout life when a policyholder may want to consider updating beneficiaries on an existing policy.
“Insurance policy updates may not be the most romantic prospect for most newlyweds, but they can be crucial to protecting a spouse from potential financial issues,” said Charlie Burns, a financial representative for Northwestern Mutual. In the event of one spouse’s passing, the other becomes solely responsible for bills, responsibilities, and even mortgage payments or other joint debt. The death benefit from a life insurance policy can go a long way towards alleviating financial problems during an already stressful time.
Whether a policyholder has a biological child or adopts one, they have a dependent. They may want to update beneficiary information so that their children can receive the benefit. Minors can’t directly receive funds from a life insurance policy, so policyholders may want to create a trust in their child’s name and then name the trust as the beneficiary. They may also choose to elect their spouse or another family member as the beneficiary to ensure the money is used for the children in accordance with the policyholder’s wishes.
Divorce or separation
After separating from a spouse, a policyholder may want to remove them as beneficiary and name another family member or child instead. Similar to other major life events like childbirth or marriage, the period immediately after or during a divorce can be a busy and stressful time. However, changing beneficiaries can definitely be among one of the important steps to take during this period.
An existing beneficiary has passed away
Since beneficiaries are usually close family or friends, the loss of such a person would be a source of grief and pain. However, updating the beneficiary can be crucial at this stage. If a policyholder passes away with no beneficiary, the funds could get held up in court. To avoid this, policyholders sometimes name contingent beneficiaries so that even if one passes away, the others would still get the benefit.
Becoming a grandparent
Similar to having children, having grandkids may be a reason to update beneficiaries. Policyholders may want their life insurance benefits to go towards a college fund or other expenses. If grandchildren are minors, they can’t directly receive funds from a life insurance policy, so a trust may be a useful tool to ensure that the funds are used according to the policyholder’s wishes.
This list is by no means comprehensive—there may be other scenarios that may require a beneficiary change. “Changing financial fortunes in the family, obligations toward a caregiver, or becoming a guardian or parent are all situations that could motivate a beneficiary update,” said Burns. “There are many reasons to make this change, but the important thing is to remember to stay up-to-date and make changes in a timely manner.”