Tip: Nudge Clients To Update Beneficiaries



Imagine you have just lost a loved one.

As affairs are sorted out over the subsequent days, you unfortunately come to discover that the beneficiary listed on that loved one’s life insurance policy is inaccurate, having not been updated in decades.

This situation is actually much more common than you might imagine.

Beneficiaries are required on important financial accounts, but many people simply don’t think to review those listings on a regular basis.

In order to avoid the confusion and stress that generally accompany outdated beneficiaries, here are a few simple guidelines to walk clients through the review process:

Step 1: Understanding the role of a beneficiary

We all know the term beneficiary, but what does it actually mean? A beneficiary is nothing more than an official designation that entitles a particular person (or charitable organization in some scenarios) to an account benefit in the event of the account or policy-holders death.

It’s a tool that – if deployed correctly – helps ensure that loved ones are both taken care of and can continue carrying on the ideals and legacy of the departed party.

For example, a parent may list their eldest child (as long as he or she is a legal adult) as beneficiary on a life insurance policy. If that parent were to pass away, the eldest child is then entitled to the death benefit, which varies in magnitude depending on the type and scope of policy.

Step 2: Understanding when to update a beneficiary

Most people name a beneficiary when opening an account, and then never think about it again. It’s not that they purposely ignore beneficiary designations, but the task does not register high on financial “to-do” lists.

Beneficiaries don’t require the constant updating and shifting, but as a general rule of thumb, review designations in conjunction with major life events.

Items such as marriage, divorce, birth or a change of occupation are generally the most common catalysts for a beneficiary change.

For example, someone who marries in their 30s may have initially listed a sibling as beneficiary on their retirement account, but might want to consider shifting to the new spouse.

One of the more common scenarios (and roots of the aforementioned conflict) is divorce; particularly when one side does not update and remove a former spouse.

Consider setting at least one annual reminder to review beneficiaries. This will help you mitigate the potential for any surprises.

Step 3: Understanding how to update a beneficiary

Updating a beneficiary takes no time at all. All you have to do is contact either your financial institution or employer (whichever entity owns and operates the account or policy) and request a change. This step might require a bit of paperwork, but there are generally no associated costs or limits on the number of requested updates.

Do ensure you keep beneficiaries in the know, as it is not a responsibility that should be taken lightly. Many senior citizens will even spend time talking with selected beneficiaries about their strategic vision for the funds.

Beneficiaries are a key aspect of financial management, but must be kept current in order to maximize impact.

Ronald Stenger is a Managing Director, Wealth Management and Wealth Advisor with the Wealth Management Division of Morgan Stanley in Oak Brook. The information contained in this column is not a solicitation to purchase or sell investments.


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