New baby, divorce, new job: when to review your coverage and who is named on it

Once a year, and every time your life changes

Review your life insurance and the beneficiaries on every policy and retirement account at least once a year, and again after any major change: marriage, a birth or adoption, a divorce, a death in the family, a new home, a new job or a big change in income. FINRA recommends updating or confirming retirement account beneficiaries annually. The review takes less than an hour, and it matters because, as the Texas State Law Library explains, life insurance and retirement accounts generally pass directly to the named beneficiaries rather than through a will.

I have sat with families who discovered, at the worst possible moment, that a policy still named a parent who had died or an account named nobody at all. None of them were careless people. They simply bought something years earlier, put the paperwork in a drawer and never had a reason to look again.

Why the beneficiary form can matter more than your will

Many people assume their will controls everything they own. It does not. The Texas State Law Library describes nonprobate property as assets that skip the probate process and are transferred directly to beneficiaries according to a contract or deed, and it lists life insurance, retirement accounts such as 401(k)s and IRAs, and payable-on-death bank accounts among them. In practice, that means the name on the beneficiary form is usually who receives the money, regardless of what the will says.

That makes the form one of the most important documents you own and one of the least read. If you have a will or are thinking about one, the two should agree. An estate planning attorney can explain how your accounts and your will work together; for the basics of what happens without a will in Texas, see what happens to a Texas family's house, accounts and children if there is no will.

Life events that should send you to your paperwork

Some changes clearly call for a review; others are easy to overlook. Use this list as a prompt, and when one of these happens, put a reminder on your calendar for the following month so the review does not slip.

Moves count too. Many Dallas families change homes as the children grow, and a new address is a natural moment to check that every insurer and account custodian can still reach you. A company that cannot find you cannot send the notices about premiums, term deadlines or conversion options that you would want to see.

• Marriage, which often means adding a spouse as beneficiary and revisiting coverage amounts
• A birth or adoption, which raises the coverage a family needs and changes contingent beneficiaries
• A divorce or separation, which can leave an ex-spouse named on accounts
• The death of a named beneficiary
• Buying a home or taking on a larger mortgage
• A new job, a job loss or starting a business
• Children growing up and becoming independent

Divorce deserves special care

Divorce is where outdated beneficiary forms cause the most trouble. The Texas State Law Library notes that Texas law often nullifies a beneficiary designation naming a former spouse, but that plans governed by the federal ERISA law, which include many employer-sponsored life insurance policies and 401(k) accounts, may still pay the listed beneficiary regardless of the divorce. The rules depend on the type of account, so the safest course is not to rely on any automatic rule.

After a divorce, update every beneficiary form yourself and keep confirmation that the change was made. The divorce decree may also require certain coverage to stay in place for children, so talk to your family law attorney before changing anything. If a business is part of the divorce, the property issues are covered in how a Texas divorce values and divides a business.

What to check on each policy and account

Gather every life insurance policy, including group coverage through work, and every retirement and investment account, including old ones from former employers. For each, confirm the details below. The Texas Department of Insurance notes that you can name more than one beneficiary and specify how the money is divided, so check the percentages as well as the names.

When you make a change, make it with the company that holds the policy or account, using its own form or online process, and keep the confirmation. A note in your files or a line in a letter to your family does not change who the company will pay. If you are unsure whether a change went through, call and ask them to read back the beneficiaries on file.

• Primary beneficiary: the right person, with correct full name and details
• Contingent beneficiary: someone named in case the primary has died
• Shares: percentages that add up and still reflect your wishes
• Coverage amount: still enough for your current debts, income and children
• Term: still running long enough to cover the mortgage and dependent years
• Ownership and contact details: current address, phone and email on file

Is the coverage amount still right?

Beneficiaries are only half of the review. Coverage that fit a couple with no children and a small apartment may be far too little for the same couple with three children and a house. Raises, new debt and a parent leaving work to stay home all change the number. I lay out how to recalculate it in how much life insurance a family really needs.

Watch, too, for coverage that has quietly disappeared. The Texas Department of Insurance notes that group life insurance typically ends when you leave your job, so a job change can remove coverage you were counting on. And if a term policy is nearing its end, check whether it can be renewed or converted before the deadline; I discuss what happens at the end of a term in whether term coverage is wasted if you outlive it.

A review is also the moment to ask whether the plan around the coverage still fits. If the children are nearly grown and savings have built up, you may need less protection than before. If you have started a business or taken on a larger home, you may need more. The goal is coverage that matches the family you have now, not the one you had when you bought it.

Retirement accounts need the same yearly look

FINRA suggests an annual checkup of workplace retirement accounts that covers your savings rate, whether you are contributing enough to receive any employer match, the plan's fees, your investment mix and your beneficiaries. FINRA notes that employers are required to disclose plan fees each year, so the information is usually already in your inbox or mailbox.

This is also a good time to round up old accounts. If you have a 401(k) still sitting with a former employer, decide whether it should stay or move, and make sure its beneficiary is current either way. I walk through that decision in what an old 401(k) rollover involves. Keep in mind that the IRS notes some retirement plans require specific beneficiaries, such as a spouse, under the plan's terms, so a change may need a spouse's consent.

Common oversights that are easy to fix

Most problems I find in reviews take minutes to correct once someone spots them. The difficulty is that nobody looks until they have to.

A useful habit is to review both spouses' paperwork at the same sitting, side by side. It is the easiest way to catch a policy one of you forgot about, a contingent beneficiary that only one of you named, or shares that no longer match what you both intend.

• No contingent beneficiary named on a policy or account
• A minor child named directly, without talking to an attorney about how the money would be managed
• An ex-spouse or a deceased parent still listed
• Coverage from an old job assumed to still exist
• Beneficiary forms that do not match the will or estate plan
• Only one spouse reviewed, while the other's accounts go unchecked

Make sure your family can find it all

A perfectly current beneficiary form does little good if nobody knows the policy exists. Keep a simple list of every policy and account: the company, the policy or account number, the type of coverage and how to contact the company. Store it with your will and other important papers, and tell your spouse or the person you trust where it is.

When a death happens, the State Law Library notes that beneficiaries generally need to contact the institution directly to claim nonprobate assets. A clear list saves your family from searching through old mail and email during the hardest weeks of their lives.

• Company name and phone number for each policy and account
• Policy or account numbers
• Who is named as primary and contingent beneficiary
• Where the original documents are kept

How I handle reviews with families

Reviews are part of how I work, not a one-time event. For the families I serve around Dallas, we look at coverage amounts, terms and beneficiaries on the policies and accounts I helped set up, and we talk through anything else they bring, such as workplace plans and older policies. When something needs a legal answer, such as how a trust or a divorce decree affects a designation, I recommend talking to an estate planning or family law attorney.

If it has been more than a year since you looked at your beneficiaries, or if any of the life events above has happened since, gather your policies and statements and set aside an hour. If you would like a second set of eyes, a review with me carries no obligation. You will leave knowing who is named on what, whether the coverage still fits, and what, if anything, to change.

Questions people ask me