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1. Neglecting to tell your beneficiaries that you even have life insurance

For various reasons, many people who buy life insurance don't tell their relatives -- or even the executor they've chosen -- that they have an insurance policy. Some individuals want to avoid financial questions or prevent family squabbles over the topic.

Others choose not to discuss their coverage because they want the freedom to discretely change beneficiaries. And some people simply forget to bring up this important subject with loved ones.

life insurance mistakes"But somebody has to know, because if you die, and nobody knows about the life insurance, who is going to contact the insurance company and have a claim processed?" asks W. Stuart Woodbury Jr., president of the Stuart Woodbury Insurance Agency Inc. in Liberty, Mo.

For family members trying to track down a loved one's life insurance, "it's like a needle in a haystack," Woodbury says.

That's because life insurance companies operate in a fragmented market and "there isn't a national database to hunt down insurance policies," says Glenn Daily, a fee-only life insurance consultant (which means he takes no commissions) in New York.

When Daly gets calls from people who suspect that relatives had life insurance, he refers the callers to the MIB Group, which offers a policy locator service. However, the service only tracks applications submitted in the last 14 years. If your relative applied for life insurance 20 years ago, MIB won’t know about it.

The Social Security Administration keeps an updated database of the deceased called the Death Master File, which includes names, birth dates, Social Security numbers and last known addresses.

Life insurance companies that check the Death Master File against their own list of customers can find out when benefits are due and to whom. But insurers generally don’t bother to do so. Here’s more on why life insurance companies don’t care if you’re dead.

A quick fix for anyone reluctant to divulge life insurance policy information to relatives is to tell a lawyer, accountant or financial adviser about the policy. Alternatively, "make a copy of the face sheet of the insurance policy, which includes your name, policy number and the contact information for the insurance company," Woodbury suggests. "Then put it in a sealed envelope and give it to the person who will make financial decisions at your death."

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