Life Insurance Awareness

Insurance is confusing for most people. Property insurance. Casualty insurance. Life. Term Life. Universal Life. Home. Auto. For any type of risk there is someone offering insurance for it. 

Because insurance is so complicated most individuals avoid it. Unfortunately, this can be a costly decision. Because September is Life Insurance Awareness Month the purpose of this article is to hopefully shed some light on an aspect of life insurance that many people struggle with. 

When you purchase any type of life insurance one of the most important documents that you sign is your beneficiary designation. This is a legal document that tells the insurer who will get the face amount of the policy if you were to pass away. Most individuals don’t remember to update this on a regular basis and consequently this causes family conflicts later. Life is unpredictable. People get married. Beneficiaries predecease policy holders. Children grow up, and unfortunately, sometimes families break up. 

Many people believe that if they have a will that the will overrides any beneficiary designations in place. This is not true. Even if a will says that all proceeds of all insurance policies go to a certain individual, legally the insurance company has to pay the beneficiary on file even if it is different from what is specified in the will. 

Because the beneficiary designation is so important it is critical that it is filled out properly for your wishes to be honored after your decease. Here are five handy tips.

1. Know the difference between a primary beneficiary and a contingent beneficiary. The primary beneficiary is the first person that you want to receive the proceeds from the insurance pay out if you were to pass away. A contingent beneficiary is a backup designation in case the primary is predeceased or passes away at the same time. 
2. Don’t designate a minor. Most people take out life insurance to make sure that their children are taken care of if they will not be there to care for them. However, if you designate a minor the insurance will go into probate, and they may not have the money when they need it most. It is advisable to designate someone you trust who will be the minor’s guardian. That way the money will be available as soon as the claim is filed and paid. 
3. If you are designating an estate or trust, find out if your insurance company needs trust documents to be on file in advance. The insurer will need to know who your trustees are and sometimes will need a Tax ID number. Finding these documents after your decease can sometimes be difficult for family members and it will be easier if the insurance company has all that information in advance.
4. Think through how your family will be using your insurance and know if it is an assignable policy. If you only have a small amount of insurance and you haven’t prepaid for your funeral expenses, make sure that your policy can be assigned directly to the funeral home. You also should check with your funeral home to make sure that they accept assignments, and communicate this with your family. 
5. Make sure that your family knows what polices you have in place. Many life insurance claims go unpaid because a person passes away and no one notifies the insurance carrier of a death. If you family doesn’t know that you have life insurance or who to contact, they may not be able to get the funds that you designated for them. 

As a rule of personal finance, it is good to have an emergency fund in place for the time that it takes to get the insurance benefit. Generally, insurers can process a claim in 4 to 6 weeks, but if there are questions or additional documentation is needed, the claim may be delayed. This is exceptionally true in cases where the death is accidental in nature. More documentation is needed in these kinds of situations, and so it may take longer for funds to be available. 

One area of good stewardship is making sure that your family is provided for after your passing. Most people refuse to confront their own mortality. No one wants to think about the fact that eventually they will die, and so they refuse to think about what life will be like for those who are left behind. Add to this the fact that we believe that Jesus could come back at any moment, we tend to believe that neither we nor our families will have to face our death. While Jesus is still coming soon, we must prepare in such a way that our family is cared for if His coming is beyond our lifetime.