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Caring For Generations

Life Insurance Can Be a Lifesaver if Paid at the Right Time

On Behalf of | Oct 14, 2015 | Uncategorized

There is such a thing as doing the right thing, and for the right person, but at the wrong time; there is also such a thing as doing the right thing, but in the wrong way.

In the area of estate planning, life insurance is one of those right things that can go very wrong.  At Rebecca W. Geyer & Associates, we know how mistakes in planning can cause good intentions to have unwanted results.
“The proceeds of life insurance are often payable to a beneficiary at the wrong time,” writes Stephan Leimberg in How does Leimberg define “wrong” when it comes to the timing of a beneficiary’s receiving life insurance proceeds? “Before that person is emotionally, physically, or legally capable of handling it,” Leimberg explains.

Beneficiaries often receive proceeds in “the wrong manner,” he adds, meaning outright rather than being paid over a period of years or paid into a trust.

And what if the beneficiary is no longer alive? Leimberg questions.  Often, no contingent beneficiary has been named.  The “Rule of 2” should be applied here, he advises.  In any legal instrument that will transfer property at death, there should be at least one backup recipient named.

Yet another “wrong thing” often found in using life insurance as part of an estate plan is naming the insured’s estate as beneficiary. Doing that, Leimberg explains, needlessly subjects the proceeds to claims by the insured’s creditors, and also can result in increased probate costs.  “In most estate planning situations, life insurance should be payable only to a named beneficiary, a trust, or a business entity,” he cautions.

One of the issues commonly seen at Geyer & Associates is the designation of minor children as life insurance beneficiaries.  Under Indiana law, if a minor child receives more than $10,000 in assets from a decedent, including life insurance proceeds, a guardianship must be opened for the child.  The inherited funds are typically placed in a restricted account, and the guardian must provide receipts to be reimbursed from the collected funds.  Any funds which remain in the account when the child turns 18 are paid directly to the child, which likely was not the decedent’s intent.  Properly designating beneficiaries and understanding the consequences of those designations is extremely important.

“Traditionally, insurance companies have required beneficiaries to file claims to receive benefits from life insurance policies.  That has meant that claims sometimes are never filed – perhaps because policy documents were lost, or because beneficiaries did not know a policy existed,” wrote Ann Carrns in the New York Times. A multistate task force was created by the National Association of Insurance Commissioners to combat this very problem by routinely matching policyholder records with the death master file, but “the best way to avoid problems with life insurance claims is for policyholders to discuss policies with their beneficiaries,” she notes.

At Rebecca W. Geyer & Associates, PC, our estate planning attorneys know our clients all want to do the right things in the right way.  An important area of our work involves using life insurance as an estate planning tool.

With proper planning, life insurance can turn out to be a life saver for beneficiaries!
– by Rebecca Geyer