Why You Should Periodically Update Your Beneficiary Designations
When you signed up for life insurance, a retirement plan, or a similar financial account, you likely named a beneficiary and promptly forgot about it. However, it is important to periodically update your beneficiaries to make sure the right people receive your assets. With the help of our friends at HR360, we’ve put together some information for employers to help employees understand why you should periodically update your beneficiary designations.
Types of beneficiaries
A beneficiary is the person or entity that receives assets from your life insurance policy or other financial accounts after your death. There are two types of beneficiaries, and you can name one or more people or entities for each type.
- A primary beneficiary is the first person who will receive the proceeds of your life insurance or financial accounts. You can name multiple primary beneficiaries, and they will then share the assets.
- Contingent beneficiaries are the “backup,” or secondary, beneficiaries because they will only receive the proceeds of your accounts if the primary beneficiaries have died, cannot be located or refuse to accept.
Why choosing your beneficiary designations matters
The beneficiary designations for your retirement savings, life insurance and other financial accounts take precedence over your will. If you want your wishes to be followed after your death, you need to keep your beneficiaries updated. If you have not listed anyone as a beneficiary, your assets will follow a default order to determine who will receive it, such as your spouse, your children, your parents and then your siblings. Listing a beneficiary—and keeping it updated—will save time, effort, and potential conflict after you are gone.
Common errors when designating your beneficiary
Even if you did name someone as a beneficiary, you need to update the names whenever there is a change in who you want to receive your assets. A few common mistakes include not adding a spouse after marriage, not adding children as they are born, leaving an ex-spouse named after a divorce and leaving parents and siblings listed after you married and started your own family.
When to update your beneficiary designation
Whenever you experience a life change such as marriage, divorce, death of a spouse or child, birth of a child or grandchild or similar event that alters your family, you should review your beneficiary designations and make any necessary changes. You should also update your beneficiary listing when a beneficiary changes his or her name, such as an adult child getting married. If you are not sure how to change your beneficiary, check with your human resources (HR) department, life insurance carrier or financial institution, and someone there should be able to guide you to the correct forms or process to change it.
Information in this article is presented for informational purposes only and is not intended to replace the advice of an insurance professional. If you need more information or if you still have questions, please contact the Employee Benefits Management Group (EBMG) at Rose & Kiernan, Inc. here or by calling (800) 242-4433.