Using Your Insurance: Beneficiary Troubles

Jim Biesterfelt

Vice President of Group Special Accounts, Great-West Life & Annuity Insurance Company
Greenwood Village, Colorado

Dentists own life insurance because they care about someone—a spouse, child, business partner, or friend. So it is distressing when the insurance proceeds cannot be paid immediately to the beneficiaries because of an oversight that could have been avoided. “The vast majority of life insurance claims are paid without delay,” says Loye Guthrie, senior life and disability claims specialist at Great-West Life & Annuity Insurance Company. Great-West Life underwrites and administers the American Dental Association’s (ADA) group life insurance plans. “But invariably I have a few claims on my desk where the named beneficiary cannot be located or there are other issues regarding the beneficiary designation,” he says. “That’s why it is so important to keep track of your life insurance beneficiaries and update them on a regular basis,” Guthrie continues. “Don’t forget your retirement accounts, annuities, and bank accounts that are payable upon death because these assets also are distributed according to beneficiary designations, which generally bypass a will. In short, make sure that your beneficiaries are those whom you want to receive the proceeds today.”

BENEFICIARY DIES FIRST

What happens when a beneficiary dies before the insured? First, Guthrie checks the records for a contingent (or secondary) beneficiary. If no contingent beneficiary is named, the insurance proceeds must be paid to the insured’s estate, then go through probate, and eventually be distributed to the heirs according to the terms of the insured’s will, which could result in unintended, negative tax consequences. If there is no will, Great-West Life attempts to obtain a survivorship affidavit so the company can distribute the proceeds to the insured’s next of kin.

Solution: “Keeping beneficiaries current and naming a contingent beneficiary can avoid these problems,” Guthrie says.

MISSING BENEFICIARY

When a named beneficiary does not come forward, Great-West Life will conduct a search of public records and commercial Web sites to try to find the individual. “I’ll send letters to the last known address and make phone calls, but sometimes the letters come back or the phone may be disconnected,” Guthrie says. If the beneficiary cannot be found, the proceeds must be paid to the insured’s state of residence by escheat—the money goes into the state’s unclaimed property fund where it can be claimed by the beneficiary if the individual appears at a later date.

Solution: “If you name someone as beneficiary who is not known by your family or the administrator of your will, leave instructions for finding the individual, including an up-to-date address,” Guthrie recommends. “Again, periodically review your beneficiary designations for currency and notify the insurance company if you want to make any changes.”

CONCLUSION

Call your insurance company (800-568-2001 for the ADA Insurance Plans) to review your beneficiary designations. To help keep track of your beneficiaries and other estate planning information, the ADA and Great-West Life have developed a free Estate Planning Kit. Request one at ada@gwl.com or call 888-463-4545.

Editor’s note: This article does not constitute legal, tax, or financial advice. Please seek professional input as appropriate to your situation.

Great-West Life underwrites and administers the ADA Insurance Plans and is the exclusive provider of ADA-sponsored life and disability insurance to ADA members and their families. For more information, call 888-463-4545 or go to www.insurance.ada.org.