How to Choose the Right Beneficiary: Common Mistakes and How to Avoid Them

When purchasing a life insurance policy, one of the most important decisions you'll make is

choosing a beneficiary. This is the person or entity that will receive the proceeds of your policy in the event of your death. While it may seem like a straightforward decision, there are several mistakes that can be made when naming a beneficiary. Here are five mistakes to avoid:

1. Not updating your beneficiary information regularly

Life is unpredictable, and your circumstances can change rapidly. It's important to regularly

review your beneficiary information and ensure it's up to date. Failing to update your

beneficiary information could result in your life insurance proceeds being paid to someone who you no longer want to receive them, or to someone who is no longer alive.

2. Naming a minor child as the beneficiary

While you may want your child to receive your life insurance proceeds, naming a minor child as the beneficiary can create several problems. Minors cannot legally receive large sums of

money, so a court-appointed guardian may be required to manage the funds until the child

reaches adulthood. This process can be time-consuming and expensive. Instead, consider

setting up a trust for your child and naming the trust as the beneficiary.

3. Not considering the tax implications

When you name a beneficiary, it's important to consider the tax implications. If you name an

individual as your beneficiary, they will receive the proceeds tax-free. However, if you name

your estate as the beneficiary, the proceeds will be subject to estate taxes. This can result in a significant reduction in the amount of money your beneficiaries will receive.

4. Naming a charity as the primary beneficiary

While many people choose to name a charity as a beneficiary, it's important to consider the

impact this will have on your loved ones. If you name a charity as the primary beneficiary, your family may not receive any of the life insurance proceeds. Instead, consider naming your loved ones as the primary beneficiaries and a charity as the contingent beneficiary.

5. Failing to name a contingent beneficiary

It's important to name a contingent beneficiary in case your primary beneficiary predeceases

you or is unable to receive the proceeds for any reason. Failing to name a contingent

beneficiary can result in the proceeds being paid to your estate, which can create additional

complications and delay the payout of the proceeds.

Choosing a beneficiary for your life insurance policy is a crucial decision that

should not be taken lightly. Avoid these common mistakes by updating your beneficiary

information regularly, not naming a minor child as the beneficiary, considering the tax

implications, not naming a charity as the primary beneficiary, and naming a contingent

beneficiary. By avoiding these mistakes, you can ensure that your loved ones receive the

proceeds of your life insurance policy as intended.

Discuss this and many other situations with one of MyFederalRetirement.US Specialists.