Bought Life Insurance? Don't Make This Big Mistake

by Maurie Backman 

Image source: Getty Images

Key points

• A life insurance policy can protect the people who are most important to you.
• But you'll need to make them aware that your policy is in place.
• If your loved ones don't know about the policy, they won't be able to file a claim in the event of your death.

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When my friend's father passed away a few years ago at the relatively young age of 60, she was left reeling emotionally. But once she got over the shock, she realized something. At one point, her father had mentioned having a life insurance policy. The problem was, that's all she knew. And she didn't have an opportunity to ask him about it.

Unfortunately, her father was rushed to the hospital in the course of suffering a fatal heart attack. Sadly, my friend didn't even have time to say goodbye, let alone find out which life insurance company he had used or where she could access his policy details.

Eventually, she was able to get the information she needed. And as an only child, she was able to benefit from a small lump sum that she then used as a down payment on a home.

But the whole process would've been a lot less harrowing if she had all the right information from the start. And so if you're going to be putting a life insurance policy into place to protect your loved ones, you don't want to make the mistake of not giving them all of the details. Otherwise, you could end up making a tough situation even more difficult.

Loop your loved ones in

The fact that you're getting life insurance means you care about your loved ones and want to make sure they're protected financially in the event of your passing. So it's important to take that concept one step further by discussing your policy details and giving your beneficiaries the information they need to file a claim.

Specifically, you should make sure to tell your beneficiaries:

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• The name of your life insurance company
• Your policy number
• Your policy details (whether it's a term life insurance policy or a whole life policy, and in the case of the former, when the policy is set to expire)
• The amount of your policy's death benefit (it will help to know whether your loved ones are in line for a $100,000 payout versus a $500,000 payout)

Of course, you'll also need to make sure to designate beneficiaries on your actual policy. This is something you'll generally be prompted to do when you sign up for life insurance. However, your beneficiaries could change over time.

If you get life insurance when you only have one child but then have two more, you'll want to add them to your policy. Or, if you get divorced and then marry again, you will likely want to update your policy to benefit your current spouse, not your former one.

Make sure your loved ones aren't in the dark

Talking about life insurance can be uncomfortable. But if you're taking the step to put a policy in place, then it pays to have that conversation so your loved ones know what to expect.

Dealing with the death of a loved one can be challenging enough. The last thing you want is to send the people you care most about on a wild goose chase to get the money they're entitled to upon your passing.