Accessing Your Life Insurance: What You Need To Know

Life insurance is a contract between a policyholder and an insurance company that pays out a death benefit when the insured person passes away. There are several types of life insurance, including term and permanent plans. Term life insurance policies expire after a certain number of years, while permanent life insurance policies remain active until the insured person dies, stops paying premiums, or surrenders the policy. Permanent life insurance consists of two types: whole life and universal life. Whole life insurance policies generally have fixed premiums and death benefits, while universal life insurance policies offer flexible premiums and the ability to change the death benefit. When purchasing life insurance, it is important to consider factors such as the amount of coverage needed, the type of policy, the cost of premiums, and any optional coverages. Additionally, it is crucial to name beneficiaries, whether individuals or organizations, who will receive the benefits of the policy.

Locating a life insurance policy

Search the Deceased's Documents and Correspondence:

Go through the deceased person's paper and digital files, bank safe deposit boxes, and other storage spaces. Look for insurance-related documents, such as policy applications, premium notices, dividend notices, or bank statements showing payments to life insurance companies. Check their mail, email, and tax returns for any relevant information.

Contact Relevant Parties:

Get in touch with the deceased's banker, financial advisor, attorney, or executor of their will. They may have information about the life insurance policy or can guide you in the right direction. Contact the deceased's previous employers, as they may have provided group life insurance as part of their employee benefits package. Reach out to their home or auto insurance agent, as they may have also purchased life insurance through them.

Utilize Online Tools:

The National Association of Insurance Commissioners (NAIC) offers a free online Life Insurance Policy Locator Service. This tool allows you to search for life insurance policies or annuity contracts purchased anywhere in the United States. You will need information from the death certificate, including the deceased's social security number, legal name, date of birth, and date of death. If a policy is found and you are the beneficiary, the insurance company will contact you directly.

Check with State Departments:

Contact your state's Unclaimed Property Office, as life insurance companies are required to turn over death benefits to the state when they are unable to locate the beneficiary. You can search the state's unclaimed property database, such as the State Controller's Office Life Insurance Settlement Property Search engine or the Texas Unclaimed Property website. Additionally, reach out to your state insurance department, as unclaimed life insurance policies may eventually be passed on to them.

Consider Fee-Based Services:

If you are unable to locate the life insurance policy through the above methods, you may consider using fee-based services. MIB, an insurance membership corporation, offers services to help find evidence of life insurance applications. Several private companies also provide assistance in locating lost life insurance policies for a fee.

Understanding different types of life insurance

Life insurance is a contract between a policyholder and an insurance company that pays out a death benefit when the insured person passes away. There are several types of life insurance, including term and permanent plans. Here is a breakdown of the different types of life insurance:

Term Life Insurance

Term life insurance provides coverage for a set amount of time, such as 10, 15, 20, or 30 years. It is generally more affordable than permanent life insurance and provides coverage for a specified period. Term life insurance is often chosen by those who want coverage during their prime working years or while their children are young. It does not contain a cash value component, and you cannot borrow against the death benefit. However, some term life insurance policies can be converted into whole or universal life policies.

Whole Life Insurance

Whole life insurance is a type of permanent life insurance that provides coverage for your entire lifetime, as long as you keep up with premium payments. It includes a savings component, or cash value, that grows over time at a fixed interest rate. The cash value can be borrowed against, but if not repaid, it will reduce the death benefit. Whole life insurance is typically more expensive than term life insurance due to the lifelong coverage and cash value component.

Universal Life Insurance

Universal life insurance is another type of permanent life insurance that offers flexibility. It allows you to adjust your premiums, death benefit, and coverage length within certain limits. Similar to whole life insurance, it includes a savings component that grows based on market interest rates. Universal life insurance is typically less expensive than whole life insurance but does not guarantee the death benefit or cash value growth.

Variable Life Insurance

Variable life insurance is a riskier type of permanent life insurance that combines a fixed death benefit with a variable cash value. The cash value is tied to investment accounts, such as bonds and mutual funds, and can fluctuate based on market performance. Variable life insurance offers the potential for higher returns but also carries higher fees and risks.

Final Expense Life Insurance

Also known as burial or funeral insurance, final expense life insurance is a type of whole life insurance with a smaller death benefit designed to cover end-of-life expenses. It is easier to qualify for, especially for older individuals or those with pre-existing health conditions, as it typically does not require a medical exam. The coverage amount is usually capped at a lower limit compared to other types of life insurance.

Other Types of Life Insurance

In addition to the main types mentioned above, there are other variations of life insurance, including:

• Group life insurance: Offered by employers as part of workplace benefits.
• Mortgage life insurance: Covers the balance of a mortgage and pays out to the lender.
• Credit life insurance: Pays off a specific loan, such as a home equity loan, in the event of the insured's death.
• Accidental death and dismemberment insurance (AD&D): Covers death or serious injuries resulting from an accident.
• Joint life insurance: Insures two lives under one policy, with variations depending on whether the payout is made after the first or second death.

Riders and customisation

Riders are add-ons that can be purchased and added to a basic life insurance policy. They allow you to customise your policy and can provide several kinds of protection if you meet their conditions. Riders are most often associated with permanent life insurance policies.

Guaranteed Insurability Rider

This rider allows you to purchase additional insurance coverage within a stated period without the need for a further medical examination. This type of rider may also provide a renewal of your base policy at the end of its term without a medical check-up. Guaranteed insurability riders may end at a certain age.

Accidental Death Rider

An accidental death rider pays out an additional amount of the death benefit if the insured dies as a result of an accident. In the event of death due to accidental bodily injury, the insured's family gets twice the amount of the policy. That's why this rider is called a double indemnity rider.

Waiver of Premium Rider

Under this rider, future premiums are waived if the insured becomes permanently disabled or loses their income as a result of injury or illness prior to a specified age. In these circumstances, the rider exempts policyholders from paying the premium due on the base policy until they are ready to work again.

Family Income Benefit Rider

In the case that the insured dies, a family income benefit rider will provide a steady flow of income to family members. When buying this rider, you need to determine the number of years your family is going to receive the benefit. This rider is generally purchased by individuals who are the sole breadwinners of their families.

Accelerated Death Benefit Rider

Under an accelerated death benefit rider, an insured person can use the death benefits if diagnosed with a terminal illness that will considerably shorten their lifespan. On average, insurers advance a percentage of the death benefit of the base policy to the insured.

Long-Term Care Rider

In the event that the insured has to stay at a nursing home or receive home care, this rider offers monthly payments. Although long-term care insurance can be bought individually, insurance companies also offer riders that take care of your long-term care costs.

Return of Premium Rider

Under this rider, you pay a marginal premium and, at the end of the term, your premiums are returned to you in full. In the event of death, your beneficiaries will receive the paid premium amount.

Child Term Rider

You can add a child term rider to cover your children on your policy instead of purchasing separate policies for them. These riders pay a small death benefit, often from $5,000 to $25,000, if a child dies before reaching the "age of maturity", typically around 25 years old.

Cost of Living Rider

A cost of living rider gradually increases your policy's coverage over time, so the value of your policy doesn't erode due to inflation. Your premium will also increase alongside your coverage amount.

Critical and Chronic Illness Riders

These riders give you access to your death benefit if you're diagnosed with certain qualifying conditions, though they typically exclude terminal illnesses that a general accelerated death benefit would include.

Term Life Insurance Rider

A term life insurance rider lets you purchase additional term coverage on top of your permanent life insurance policy, giving you a larger death benefit for a set period of time.

Qualifying for life insurance

Qualifying life insurance policies are those with a special tax status. This means that the proceeds are tax-free for the beneficiary, provided the policy is held to maturity. These policies are typically long-term policies with regular contributions.

Qualifying policies usually have a minimum term of 10 years with fixed and fairly even premiums payable at regular intervals such as weekly, monthly, or annually. The premiums must be reasonably smooth, meaning that the premiums paid in any 12-month period must not exceed twice the premiums in any other 12-month period. The policy must be issued by a UK company or through a UK branch of an overseas resident insurer.

For policies issued or varied from 21 March 2012, annual premiums payable under all such policies must not exceed £3,600 in any 12-month period. This limit applies to qualifying policies issued on or after this date, issued in the transitional period between 21 March 2012 and 5 April 2013, or issued before 21 March 2012, which become restricted relief qualifying policies (RRQPs) after that date. A RRQP is a policy that will not have full tax relief when a chargeable event occurs because it may have been significantly modified, varied, or assigned.

Friendly society tax-exempt savings plans are a type of qualifying policy that enjoys additional tax advantages. In addition to being tax-free if held to maturity, these plans also offer tax-free growth (except for withholding tax on dividends). Friendly society plans may also be pure endowments without life cover. Due to their unique tax benefits, friendly society qualifying plans have always had a specific limit on premiums, currently set at £25 per month or £270 for annual premiums. This limit applies to each individual, not per friendly society, and children from birth are also eligible for these plans.

It's important to note that the rules regarding qualifying life insurance policies are complex. If you are unsure whether your policy qualifies or if you might breach the annual premium limit, it is recommended to contact your product provider for guidance or seek professional advice.

How to buy life insurance

Determine if you need life insurance

Before buying life insurance, you should assess whether you need it. Ask yourself if your family or beneficiaries would face financial hardship without your income, or if your dependents would be left with large amounts of debt after your death. You may also want to cover end-of-life expenses, such as funeral, burial, or medical costs, or pay for a dependent's tuition, daycare, or retirement costs.

Decide how you want to buy life insurance

You can choose to shop for life insurance with an independent local insurance agent, through an independent online broker, or by going directly to an insurance company.

Research insurance companies

When buying life insurance, it is important to research the insurance companies behind the offers you're presented with. Look for knowledgeable customer service, trustworthy agents, great consumer reviews, and financial stability.

Figure out which type of life insurance you need

There are two main types of life insurance: term life and whole life insurance. Term life insurance will cover you for a set period, usually between 10 and 30 years, while whole life insurance covers you for life if the premiums are paid. Term life insurance is generally more affordable.

Determine how much of a death benefit you need

Consider the amount you want to provide your beneficiaries upon your passing. This is called the death benefit or coverage amount. Plan for your funeral and estate costs, and think about your income, debt, and short- and long-term expenses.

Fill out and submit your application

When applying for life insurance, you will need to provide basic contact information and specify the type of policy you plan to purchase. You may also need to give your Social Security number, driver's license number, financial information, health and medical information, and nicotine or tobacco usage information. You will also need to name your beneficiary.

Prepare for your life insurance medical exam

After applying, you may need to undergo a medical exam, which will record important information about your health, such as your weight, height, and blood pressure. Your blood and urine samples may also be taken.

Review and buy your policy

Once your application and medical exam are complete, your insurer will review all your information. If approved, they will send you a breakdown of your policy details, including the rate you will pay if you decide to buy the policy.

Purchase your policy

After reviewing and accepting the terms of your policy, you can complete the purchase.

Frequently asked questions