Many life insurance policies are written somewhat improperly. Even the beneficiary arrangements may be incorrectly entered on an insurance policy.
Improper beneficiary arrangements do not always manifest themselves until after an incident. That incident could be the death of the insured. This is not the time for people to discover that something was in error.
Please consider four tiers of beneficiary arrangements. Often, the husband will be the insured. He will name the wife as the Primary Beneficiary. Confirm with your agent that the policy has a Common Disaster Clause. (This means that one automobile accident will not necessarily deprive your children of the policy proceeds.)
A parent will often then name the children as Secondary Beneficiaries. (If the Primary has also deceased, the money passes to the Secondary.) You can ask your agent to add a phrase like, “…and other children, born into or adopted into, this marriage.” Your state may have an attorney who suggests a variation of this wording. Include wording like, “…survivor or survivors, share and share alike.”
A Tertiary Beneficiary should be listed in case of the horrible event that the accident that takes the parents, could also take the children.
A CBA (Catastrophic Beneficiary Arrangement) should also be in place. In the world we live in, there are some people who are willing to engage in mass killings. The co-ordinated release of nerve gas in many cities could kill hundreds of thousands. Or more. The CBA will list an entity that can survive an attack on a nation by militants. The CBA could identify one or more groups to obtain the proceeds in the event of an attack on our nation. You could provide money for the USO (United Services Organization) in Washington, the Lion Clubs National Headquarters, the home office of a religious organization, or any entity expected to exist after a massive attack against the country.
Beneficiary arrangements can provide for a Spendthrift Clause. This allows the money to be paid to a beneficiary periodically. It protects those beneficiaries who may not be able to properly handle a large influx of cash.
An insurance company may also allow you to prohibit the money from being encumbered. Structured settlements are too often sold to companies who might be able to take advantage of an inexperienced person. In some states a person would have to have a trust established for this protection.