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Life insurance designations: Yes, things can go wrong

Rather than fashioning a gentle segue into this blog entry focusing on how things can go wrong with life insurance beneficiary designations, let's employ a real barn burner right at the outset as an example of how horror can strike unexpectedly and toss best-intentioned plans right out the window.

Here's the hypothetical (which, rest assured, has been a real-life outcome in some situations).

A policyholder (say, a husband) takes out a life insurance policy naming his wife as beneficiary. Their marriage is, well, not exactly the epitome of fun and everlasting love. Rather, they divorce with rancor and eternally negative feelings toward each other.

The man subsequently remarries, with the adage "second time lucky" being underscored by his union. He dearly loves his wife and makes every effort to ensure her continued comfort and security following his death.

Except, of course ….

That's correct. He dies without having removed the name of wife number one as insured beneficiary.

The result: Wife two receives nothing, while ex-spouse chortles all the way to the bank.

As stated, that has certainly happened in many cases, although laws in many states now prevent such an outcome from occurring.

But the point is well taken, with a recent primer on life insurance beneficiary designations noting that potentiality and several others that can undermine the intentions of a policyholder.

The bottom line here: Where insurance beneficiaries are concerned, it's best for a policyholder in Texas or elsewhere to take a little time upfront to get educated and avoid the potential for unanticipated downsides occurring down the road.

Don't name a minor child as a beneficiary, for example. A more appropriate legal instrument for leaving money to a minor is a trust.

And don't think that your will supersedes an insurance policy. It doesn't.

There are a number of things -- important things -- to think about regarding beneficiary designations, including the obvious need to timely update them.

Sadly, people often pay scant time and attention to this area of planning, with detrimental consequences resulting. Input from a proven estate administration attorney can help ensure that what a policyholder wants to happen in the future is precisely what unfolds, with no unpleasant surprises.

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