When buying life insurance in New York, it is a good idea to name a beneficiary. Failure to do so could force the proceeds of the policy to go through probate, which may create a situation where creditors have an opportunity to claim some or all of the money. By naming a beneficiary, the owner of the policy knows that the proceeds are passing to the intended recipient. In fact, it may be a good idea to name more than one person as a beneficiary.
This is advisable because if the primary beneficiary dies, someone else will be in line to receive the money. As long as the primary beneficiary is still alive, that person will get all of the proceeds and will not need to share it with secondary beneficiaries. It is common for a spouse or a child to benefit from life insurance policies taken out in the name of the decedent.
If a spouse is named as the beneficiary, it should be the owner's current spouse. It is important to remember to update the beneficiary designation after a divorce to ensure that a former spouse is not entitled to receive anything from the policy. Should a child be named as a beneficiary, the child could not directly receive the funds until he or she becomes an adult.
Those who are interested in creating a comprehensive estate plan may wish to talk to an attorney who has experience in assisting in the creation of comprehensive estate plans. Other aspects of such a plan that are important include health care directives and a financial power of attorney. It is advisable to meet with an attorney regularly to review or revise existing documents.
Source: The Motley Fool, "Buying Life Insurance? Don't Make These Mistakes with Beneficiaries", Selena Maranjian, March 6, 2015