While simple in theory, life insurance benefits can quickly become complex when beneficiary designations are incomplete, inaccurate, or out of date. As an employee benefit, group life insurance is intended to help employees protect the financial futures of their family members or individuals or organizations they care about. Without careful beneficiary planning, intended recipients may face long delays in receiving benefits—or miss out completely.
Employees can name any person or entity (except their own employer) as a beneficiary, including family members, friends, trusts or charities. But without proper beneficiary designations, an employee’s death benefit can sometimes be left to chance. If there is no beneficiary on file, death benefits are typically paid according to the group policy provisions. In these cases, the beneficiaries may or may not be who the employee had in mind.
As the group policyholder, the employer should help ensure that employee beneficiary designations are complete and reflect their intentions. Use the following guidelines to help employees make clear and accurate designations.
1) Review beneficiary designations with employees as they are completed. Before accepting the beneficiary paperwork, make sure that designations are complete, signed and dated. The beneficiary percentages must add up to 100%.
2) Request dates of birth and addresses for beneficiaries. While insurers have resources to help identify and locate beneficiaries, an accurate account record including dates of birth, relationship to insured, addresses, and even Social Security numbers can speed up processing and avoid escheatment of funds to the state.
3) Confirm beneficiaries annually. During open enrollment or other designated periods, remind employees to review and update their beneficiaries. When children are born and couples are married or divorced, it is important that beneficiary designations change as well in order to avoid competing beneficiary claims. Because competing beneficiary claims can arise in a variety of ways, they raise different legal and administrative issues.
4) Maintenance of the beneficiary designation record is the responsibility of the group policyholder. Retain records of the original designation and any changes made by the employee. Encourage employees to keep a copy with other important documents. When questions arise, easy access to beneficiary information will provide clarity and peace of mind.
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