Beneficiary Change

By Henry Bagdasarian

Have you ever thought about the risk of a beneficiary change? This is a huge identity theft risk in my opinion and most people are unaware of the risk and its impact on their lives. We all work hard to save money in our 401K and IRA accounts or buy life insurance for the future of our families. Retirement accounts are some of the biggest assets individuals possess and which can disappear very quickly due to identity theft.

I primarily see three risks with beneficiary information. First, individuals fail to select one for their accounts, second, they fail to update the information as their situations change, and third, they fail to monitor for unauthorized changes. The first two are very important in terms of transferring the funds to selected loved ones and for tax savings; however the last one is even more important and the focus of this article as the funds can disappear forever.

Normally, institutions will send their customers a notification of a beneficiary change to make sure the changes were properly authorized. This is a common practice any time your personal information such as your address or beneficiary information is changed on your existing accounts. This process helps detect identity theft in this area. My past article about credit monitoring suggested that credit report monitoring is neither a total solution to prevent identity theft nor a process to detect all identity fraud. This article is a good example to illustrate how various areas of an identity must be monitored differently to detect identity fraud.

Institutional notification of a personal information change is a very good practice to detect unauthorized changes. However, we all know that mails get lost in transit and emails sometimes disappear from the face of the Internet. Once we accept the risk of failed notification, we can incorporate a few more best practices to prevent and detect unauthorized beneficiary change. But what other practices should be incorporated to prevent and detect fraud in this area just in case email or mail notification failed?

One of the most important practices is to select strong passwords and keep it a secret. If your passwords become known or if they can easily be guessed or cracked, then your accounts become vulnerable to unauthorized access and change. Second, you should take matters into your own hands and not completely rely on the institutions to protect your assets. You should periodically check the information to validate. The review interval of a beneficiary information can be longer than the review interval of a credit report because a beneficiary change will not result in an immediate fraud for as long as you are alive where as credit fraud can commence at any time and continue until you detect and stop the fraud.

Therefore, as a good practice, we should review the beneficiary information at least annually but preferably every quarter and hopefully right before we die.

Return to the identity theft blog for other recent articles after reading "beneficiary change".