Is it time to update your beneficiaries? Do you know for sure who’s listed as the beneficiary for your life insurance policy? What about your retirement plan? When was the last time you reviewed that paperwork?
If it’s been a while, that’s OK — it’s not something that most people think about very often. But it’s important to review this information every few years and update your beneficiaries so you can feel confident that your assets will be distributed according to your wishes.
If you’ve never thought about doing this before, or need a refresher on how to update them, this post will show you how.
Why you need to update your beneficiaries
Let’s start at the beginning — what’s a beneficiary? The beneficiary of an account is the person you designate to receive the assets in the account after you die. For example, you might make your spouse the beneficiary of your life insurance or retirement accounts. Or you could make your child the beneficiary of an annuity or brokerage account.
In most cases, you designate the beneficiary when you open the account. And that person remains the beneficiary unless you change it. So, if your circumstances change (e.g., marriage divorce, death of a spouse, children, grandchildren, etc.), it’s important to review your accounts and make any necessary changes to ensure that the assets go to the person you choose.
But doesn’t your will cover who receives your assets? Not necessarily. For a life insurance policy, the beneficiary designation in your account supersedes the inheritance instructions in a will. And the same applies to retirement accounts and other types of accounts that require you to name a beneficiary.
So, the best thing to do is review and update both your will and your account beneficiaries every few years, or when your life circumstances change.
What happens if you don’t name a beneficiary?
Most accounts and plans require you to name a beneficiary when you open them. But if for some reason you don’t name one, the assets will be distributed according to the terms of the plan or account and/or any applicable state or federal laws.
Generally, the first beneficiary is your spouse, then your children, and then your estate.
How to update your beneficiaries
The exact process to update your beneficiary information depends on the account, but here are the basics.
Most life insurance providers require you to name a beneficiary when you take out your policy. But you can update that information at any time; you may be able to access your account and update the beneficiary information online, or you can call your provider’s customer service line. If your life insurance policy is through your employer, you may have to go through the HR department to make changes.
Either way, you’ll need some information to complete the process. Make sure you have your beneficiary’s full name and date of birth, and be prepared to identify whether they’re a person (like a spouse or partner) or an entity (like an organization or trust).
The process is basically the same as updating the beneficiary of your retirement account. If your plan is a 401(k), you may need to go through your employer to update the beneficiary information. If you have an IRA, try contacting the financial institution that manages it.
Either way, the process may be slightly different if you change the beneficiary while you’re contributing to the account vs. after you retire.
You can also designate beneficiaries for annuities and mutual funds. Contact the institution that manages it to learn how to update your beneficiary information.
You may also choose to name a beneficiary for a checking account. It’s not required, but most banks will let you do so via a payable-on-death (POD) account. With this type of account, the money goes directly to the named beneficiary upon your death — it doesn’t go through probate court.
For each of your accounts, you may also want to designate a contingent beneficiary who would receive the assets if your primary beneficiary is no longer alive.
Make sure your beneficiary designations are up to date
Part of managing your money well is making plans for your assets after you die. While you can use your will to name heirs who will get your home and other assets, like retirement, life insurance, or other types of investment accounts generally have their own process for naming beneficiaries.
These beneficiary designations usually supersede any contradictory instructions in your will, which is why it’s so important to review and update them every few years. Five years is a good rule of thumb to follow, but you should also update your estate planning documents and beneficiary information after any major life event, like a marriage or baby.
Not sure what accounts you have, much less who the beneficiaries are? We can help.
The Everyday Money Workbook is designed to help you and your partner work through every aspect of your finances, including your investment and life insurance details. This comprehensive workbook makes it easy to talk about your finances and helps eliminate the stress that so often accompanies money conversations.