Don’t Make These Life Insurance Mistakes
Life insurance can provide a critical financial safety net for families after a loved one passes. It’s important to understand, however, that what you do when you sign up for insurance – and how you maintain a policy – can end up impacting whether your loved ones will be able to successfully file claims against that policy later.
In other words, there are some crucial mistakes that you should avoid making with life insurance, as these missteps could give insurance companies reasons to undercut or deny life insurance claims down the line. Below, we’ll point out just what these mistakes are and how you can avoid them.
1 – Failing to be truthful on your life insurance application forms
When applying for life insurance, you will be asked to provide various details about your health and lifestyle habits. If you are not honest about these details, an insurance company can contend that you committed a material misrepresentation and, in turn, may terminate your coverage, cancel your policy and refuse to make payouts later.
2 – Failing to pay your premiums
Your life insurance policy is a contract that will remain valid as long as you hold up your end of the deal – making your premium payments in full, on time.
So, if you miss even one payment on your premium, your life insurance policy can lapse, meaning that a beneficiary’s future claim will likely be denied.
Here, it’s crucial to also be aware that not all missed payments will result in policy lapses, as insurance companies typically have “grace periods,” during which time a late payment can be made without the policy lapsing.
3 – Choosing the wrong beneficiary
Who you name as the beneficiary of your life insurance policy is also crucial, as certain beneficiary designations could end up depleting the value of the policy/the amount of the proceeds. In general, beneficiary mistakes with life insurance policies can include:
- Naming an estate as a beneficiary – If life insurance proceeds are paid out to an estate, they can be locked up in probate for months (or longer). They may even get eaten up paying an estate’s creditors, paying probate fees, etc. This can mean that a family sees little to nothing from the life insurance proceeds.
- Selecting a minor as a beneficiary – If a minor is a beneficiary when a policyholder passes away, the court will likely appoint a guardian to manage the proceeds on the minor’s behalf. Ultimately, this can mean that the proceeds from the policy are eaten up by administrative fees and that the minor only ever sees a fraction (if any) of the payout.
- Designating a beneficiary who relies on government aide – These designations can end up making beneficiaries ineligible to continue receiving government benefits (due to the sudden influx in income). As a result, the support intended for these beneficiaries may end up financially hobbling them in the long run, as their government benefits may be terminated.
- Failing to designate a secondary or tertiary beneficiary – A beneficiary selected for a policy may pass away before the policyholder. So, if a secondary (or even tertiary) beneficiary is not named, then the proceeds of the policy will be paid out to the decedent’s estate (taking us back to the first point described above).
4 – Not telling your loved ones that you have life insurance
Beneficiaries to life insurance policies cannot file claims if they are not aware that a decedent had life insurance to begin with. So, be sure to inform your loved ones that you have life insurance and, better yet, include information about your life insurance in your estate planning documents.
Contact a Denver Life Insurance Lawyer at McDermott Law, LLC Today
Has your life insurance claim been undervalued or denied? If so, you can turn to Denver Life Insurance Attorney Shawn E. McDermottfor experience standing up to insurers and appealing or even litigating your claim denial.
To learn more about how the life insurance denial attorneys at McDermott Law, LLC can help you, set up a complimentary consult with our office today by calling us at (303) 964-1800 or by emailing us using the contact form on this screen.
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