5 things to avoid when establishing a life insurance policy

Life insurance is a necessary step in your financial planning to ensure that your loved ones and family will be taken care of in the event of your death.  You can make mistakes that can cause possible issues for your family.  Our experienced St Louis financial planning team at Bogetto & Associates can help you navigate putting together the right life insurance policy for your situation and help you avoid these 5 mistakes:

1) Only naming a primary beneficiary, or not being specific enough

Most often, the spouse is named as the primary beneficiary.  You need to remember that you may be involved in a situation where you and your spouse both lose your lives.   If you have children, then you should consider including them on the policy as well.  Be specific when naming your children as policy beneficiaries...include their full names, social security numbers, and if you have a percentage of the policy going to each child.  If you do not name a beneficiary, then the benefit will typically go into your estate, leading to possible probate issues.

2) Naming a minor child as a beneficiary

Life insurance companies will not pay proceeds of the policy directly to a minor child.  Create a trust to avoid this issue and name the trust as the beneficiary of the policy.  You can also name a reliable adult as the beneficiary, or name an adult custodian for the life insurance proceeds.  If you don't take this into account, the court can appoint a guardian to handle the proceeds until the child reaches 18 or 21 depending upon the state.  This can be a costly process.

3) Not thinking about possible probate

Many people rely on a written will to express their wishes and pass their assets to their family and others.  Probate however, does not allow the policy proceeds to pass directly to the people that you want to receive it.  The will must go through probate and this can be a lengthy (and expensive) process.  By establishing a trust, you can possibly avoid these issues and get the proceeds to your family quicker.

4) Taxes, taxes, taxes

Many times, life insurance death benefits are generally tax-free.  An exception is if the policy holder is the owner of the policy, but another is the named insured.  You can name a beneficiary of the policy, but this is considered a taxable gift.  

For example, mom may be the policy owner on the life of dad for the benefit of their children. In this situation, mom is effectively creating a gift of the insurance proceeds to her children/beneficiaries. As the donor, mom may be subject to gift tax. Consult financial professionals like the team at Bogetto & Associates for advice on the best way to structure the policy. Bogetto & Associates does not provide legal or tax advice. These topics are discussed in conjunction with your CPA, Tax Advisor and Attorney.

5) Disqualifying a beneficiary from Government Benefits

A less common mistake that people can make is to disqualify their beneficiary from government benefits they may be receiving for disabilities or other circumstances.  Government benefits are often tied to the financial circumstances of the individual and receiving proceeds from a life insurance policy may disqualify them from needed help.  In addition, there is a possibility that some proceeds may have to be reimbursed to the government for benefits paid.  Again, consulting a financial professional and an estate attorney can help you clarify any issues that may exist with your life insurance policy.

Bogetto & Associates can help!

Let our St Louis financial advisers help you with your life insurance needs.  We can help you setup the right policy, and help you avoid any beneficiary mistakes.  We will listen to your questions and provide you with any advice you need.  Life insurance is very important for your piece of mind and your family's financial future...let Bogetto & Associates help!

Sources:

http://www.insure.com/life-insurance/naming-life-insurance-beneficiaries.html 

http://www.protective.com/learning-center/life-insurance/life-insurance-basics/five-beneficiary-mistakes-people-can-make-on-their-life-insuranc-policy-and-retirement-plans/ 

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Telephone - 314-858-1602

Email - peter@bogettoandassociates.com

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St Louis, MO 63127

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Securities offered through First Heartland Capital, Inc. Member FINRA/SIPC

Bogetto Financial is not affiliated with First Heartland Capital, Inc.  

Bogetto & Associates does not provide legal or tax advice.  These topics are discussed in conjunction with your CPA, Tax Advisor and Attorney.