The Importance of Updating Beneficiaries and Salaries

Beneficiary Designation

It is essential to ensure that life insurance beneficiary designations are kept up to date under your group benefits plan.  Life events such as marriage, divorce, separation, or the birth of a child are common reasons to review and update this information.  Failing to do so could result in the benefits being paid out to someone that the individual no longer wishes to receive them.

Beneficiary designations on group benefits plans override instructions in a will.  For instance, if the will specifies that life insurance benefits should go to a family member but the group benefits plan lists a different person, the life insurance benefits will be paid to the individual listed on the benefits plan.

Failing to name a beneficiary can also create complications.  In such cases, if there is no beneficiary designated, the benefits may be paid to the estate.  This could lead to delays, as the funds will need to go through the probate process, which depending on circumstance can take months or even years.

We recommend on an annual basis that employers remind employees of the importance of keeping their beneficiary designation up to date.  The process could be as simple as sending out a memo to employees at the beginning of the year asking them to review their current beneficiary designation and submit any updates to the insurer using their online beneficiary tool or to have them fill out a new beneficiary form and provide it to your benefits administrator.

This will ensure the proceeds of your employees’ life insurance benefits are being paid out as intended.

Salary Updates

In addition to beneficiary designations, it is important that salaries for the earnings-related benefits, such as life insurance (e.g. 1 x annual earnings) and long term disability (e.g. 60% of monthly earnings), are also kept up to date with the insurer.  Insurers require the current earnings in order to calculate the benefit and premium payments.

We recommend that salary updates be provided to your insurer annually, or whenever a salary adjustment is made.  This will ensure the proper adjudication and payment of your employees’ life and disability claims should one occur.

Please contact your Baynes & White consultant should you have any questions on the above or any other employee benefits related matter.