Whole life, universal, term, refundable, you name it, lots of people buy life insurance, designate their beneficiary, and think they’re all set. The reality is that they are only halfway done. Are potential beneficiaries minors, or disabled, or receiving government assistance? Could the beneficiary benefit from some creditor protection?
Under any of these scenarios your designated life insurance beneficiaries could really benefit from you taking the time to create an estate plan. Let’s start with children. If your children are set to receive life insurance benefits two things will happen: one, their guardian will have to obtain court permission to spend any of that money – a time consuming and expensive process, and two, they will receive the full amount when they become an “adult” at age 18.
What about disabled beneficiaries, or beneficiaries receiving government assistance? Similar to minor children, without an estate plan, a beneficiary under a conservatorship won’t receive the money, it will go into a court supervised account accessible only with court permission. Beneficiaries receiving government aid may lose that assistance for a time, because now they have money. This situation is truly tragic, because the money you’ve carefully provided for them now has to replace lost government assistance, and the person will have to re-qualify for assistance when the money runs out. A well-drafted estate plan takes this scenario into consideration, and puts the benefits into a special needs trust.
Life insurance is a great product, and when paired with a good estate plan, can protect your family’s financial well-being.