4 Common Life Insurance Beneficiary Mistakes Hawaiʻi Families Should Avoid

Life insurance is often one of the most powerful tools in estate planning. For families in Honolulu and across Hawaiʻi, it’s more than just a financial product — it’s a way to say “I love you” and provide lasting protection for the people you care about most.

But beneficiary designations are trickier than they seem. Small mistakes can cause big problems for your loved ones, delaying benefits, exposing funds to creditors, or even disqualifying someone from essential government support.

Here are four common life insurance beneficiary mistakes I often see, and how you can avoid them.

1. Failing to Designate a Beneficiary

It may seem obvious, but many people either forget to name a beneficiary or list their “estate” as the beneficiary. This decision forces the proceeds into probate.

In Hawaiʻi, probate can delay the distribution of benefits for months — or longer — while a judge decides who receives the funds. The proceeds also become vulnerable to creditor claims, which can drain the money your loved ones were counting on.

How to avoid it: Always name at least one primary adult beneficiary and one or more contingent (backup) beneficiaries. For maximum protection, many Honolulu families choose to name the Trustee of their trust instead of an individual. This keeps funds out of probate and ensures they’re distributed according to your wishes.

2. Forgetting to Update Beneficiaries

Another major issue is failing to update beneficiary designations after life changes. I’ve seen situations where an ex-spouse was still named as the beneficiary, leaving a current spouse with nothing.

How to avoid it: Review your beneficiary designations every year, and especially after major life events like divorce, marriage, birth, or death. As part of my Life & Legacy Planning process, I help Hawaiʻi families keep their plans — and their beneficiary designations — up to date.

3. Naming a Minor (or Their Guardian)

While you can name a minor child as a beneficiary, it creates problems. Children can’t access life insurance proceeds until they reach adulthood (up to age 21 in Hawaiʻi). Until then, a court must appoint someone to manage the funds, often at a cost, and with no guarantee it will be the person you would have chosen.

Even naming a guardian isn’t ideal — the money would go directly to them, and could be lost in a divorce, lawsuit, or personal debt.

How to avoid it: The best solution is creating a trust to receive the insurance proceeds. The trustee then manages and distributes funds to your child as you direct — with built-in protection from divorce, lawsuits, and creditors.

4. Naming a Loved One with Special Needs

If you have a family member with special needs, naming them directly as a beneficiary can disqualify them from government benefits. That well-intentioned gift could unintentionally cause harm.

How to avoid it: Establish a special needs trust and name it as the beneficiary. This ensures your loved one continues to qualify for benefits while still receiving the financial support you want to provide.

Because Hawaiʻi’s rules around special needs trusts can be complex, it’s important to work with an experienced estate planning attorney who understands both local and federal requirements.

Protect Your Loved Ones the Right Way

Naming beneficiaries may seem straightforward, but as you can see, mistakes can have lasting consequences. The good news is that with the right guidance, you can avoid pitfalls and ensure your life insurance benefits your family in the way you intended.

If you live in Honolulu or anywhere in Hawaiʻi, I can help you structure your plan — including trusts and beneficiary designations — so your loved ones are protected with peace of mind.

FAQs

Q: Should I name my trust as the beneficiary of my life insurance policy?

A: In some cases, yes. Naming a trust keeps the funds out of probate and ensures they are distributed according to your plan, offering added protection for your loved ones.

Q: How often should I review my life insurance beneficiary designations?

A: At least once a year, and any time a major life event occurs — such as marriage, divorce, birth, or death.

Q: What happens if I don’t name a beneficiary?

A: The proceeds may go through probate, delaying distribution and exposing funds to creditors.

Q: How can I provide for a child with special needs through life insurance?

A: You can establish a special needs trust, which allows the child to continue receiving government benefits while still benefiting from your policy.

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This article is brought to you by the Law Office of Keoni Souza, a boutique estate planning firm located in Honolulu, Hawaiʻi, proudly serving families on Oʻahu and across the Hawaiian Islands. At our firm, estate planning is about more than documents — it’s about creating lasting peace of mind for you and the people you love. Through our unique Life & Legacy Planning Process, we guide you to make informed, empowered decisions that protect your wealth, your wishes, and your family’s future. To get started, contact our Honolulu office today to schedule your Life & Legacy Planning Session. Mention this article to learn how you can receive this $750 session at no charge.

Disclaimer: The information on this website is for informational purposes only and should not be considered legal advice. For guidance tailored to your specific situation, please consult an estate planning attorney licensed in the State of Hawaiʻi. Use of this website or communication through this site does not create an attorney-client relationship with the Law Office of Keoni Souza, LLC.