Life Insurance: Am I Entitled To Benefits?

Life insurance is a contract between a policyholder and an insurance company that pays out a death benefit when the insured person passes away. It is a financial tool that provides money to your family after your death to help them pay for burial costs, living expenses, bills, and education. It is meant to provide financial support to your loved ones in case of your death. The need for life insurance depends on whether you have people who depend on your income or not. If yes, then you may want to consider life insurance.

Locating a missing policy

• Search through the deceased's documents and correspondence: Go through paper and digital files, bank safe deposit boxes, and other storage spaces for insurance-related documents. Check bank statements for checks or automatic drafts to life insurance companies, and review tax returns for records of interest income or expenses paid to life insurance companies.
• Check the deceased's mail and email: Look for premium or dividend notices from insurance companies. Even if policy payments are up to date, the company may still send annual notices regarding the policy's status or dividends.
• Talk to the deceased's financial advisers: This includes their banker, financial adviser, and attorney. They may have information about the policy or know where to look for it.
• Submit a request to the National Association of Insurance Commissioners' (NAIC) Life Insurance Policy Locator Service: This free online tool can assist you in locating life insurance policies. Participating companies will search their records to determine whether they have a policy in the name of the deceased. If they do, they will respond to the designated beneficiary or authorized individual. You will need information from the death certificate, such as the social security number, legal name, date of birth, and date of death.
• Contact the state's Unclaimed Property Office: When an insured client has died, and the beneficiary cannot be found, the insurance company must turn the death benefit over to the state where the policy was purchased as "unclaimed property." You can search the National Association of Unclaimed Property Administrators' website for your state's unclaimed property database.
• Be aware of special challenges: The insurance company may have changed its name, merged with another company, or sold the policy to another company. The NAIC provides tips on how to locate insurance companies in these situations. If the company went bankrupt, contact the state life and health guaranty association.
• Consider fee-based services: If you're unable to locate the policy through the above methods, you can engage fee-based services to assist in the search. MIB, an insurance membership corporation, offers services to help find evidence of life insurance applications. Private companies can also assist in locating lost policies for a fee.

Determining who relies on your income

When determining who relies on your income, it's important to consider your financial and family situation. This will help you decide whether you need life insurance and, if so, how much coverage you should have. Here are some factors to consider:

• Spouse or partner: If your spouse or partner relies on your income, your death could leave them without financial support. A life insurance payout can help them cover living expenses and pay off debts, such as a mortgage, to maintain their standard of living.
• Stay-at-home parents or spouses: Even if they don't earn a traditional salary, stay-at-home parents or spouses provide valuable services such as cleaning, cooking, and childcare. A life insurance payout can help cover the costs of these services during a difficult time.
• Dependents: If you have minor children, elderly parents, or other dependents who rely on your financial support, your income is crucial for their well-being. A life insurance policy can ensure they are taken care of if something happens to you.
• Co-signed debts: If you have co-signed debts, such as private student loans or a mortgage, your death could leave someone else responsible for those debts. Life insurance can help cover these financial obligations.
• Business partners: If you have a shared financial responsibility with a business partner, such as a co-owned property, their death could significantly impact your financial situation. A life insurance policy on their life can provide financial protection.

It's important to note that life insurance is not just for those with traditional salaries. Anyone who contributes financially to their household, including stay-at-home parents or spouses, should consider life insurance to protect their loved ones. The key is to assess your financial responsibilities and determine who depends on your income, directly or indirectly. This will help you make an informed decision about the level of coverage you need to ensure their financial security.

Deciding on term vs permanent life insurance

When deciding between term and permanent life insurance, it's important to consider your unique circumstances, financial goals, and needs. Here are some key factors to help you make an informed decision:

Length of Coverage:

• Term life insurance provides temporary coverage for a specific period, typically between one and 30 years, or until a particular age. It offers flexibility, especially if you need coverage for a certain period or have a limited budget.
• Permanent life insurance, as the name suggests, provides long-term or lifelong coverage as long as you continue to pay the premiums. It's designed for those seeking long-term financial protection.

Benefits:

• Term life insurance offers short-term death benefit protection, usually for 10, 15, or 20 years. While it doesn't accumulate cash value, some policies provide flexible features, such as early benefits if you become terminally ill or premium waivers if you become disabled.
• Permanent life insurance offers long-term death benefit protection and the opportunity to build cash value. This cash value can be accessed to cover unexpected emergencies or significant expenses like college or retirement.

Cost:

• Term life insurance is generally more affordable, especially when purchased early in life. However, premiums can increase with age and renewal.
• Permanent life insurance is usually more expensive due to its lifelong coverage and cash value component. However, with whole life insurance, a common type of permanent policy, premiums are locked in at the time of purchase and won't increase.

Premium Structure:

• Term life insurance typically has level premiums, meaning they remain unchanged during the policy's term. However, premiums can increase with renewal.
• Permanent life insurance premiums vary depending on the type of policy. Whole life insurance offers stable premiums, while universal life insurance allows for adjustable premiums.

Suitability:

• Term life insurance is suitable for those seeking short-term coverage, starting with a limited budget, or anticipating changes in their circumstances.
• Permanent life insurance is ideal for those needing long-term financial protection, looking to create an inheritance for heirs, seeking a tax-advantaged way to save, or preferring stable premiums.

Remember, the decision between term and permanent life insurance depends on your personal situation and financial goals. It's recommended to consult a financial professional or insurance agent to help you choose the coverage that best fits your needs and budget.

Calculating the ideal amount of coverage

Calculating the ideal amount of life insurance coverage depends on your financial goals and needs. Here are some methods to help you determine the right amount of coverage:

• Income Replacement Method: This approach suggests that you should have enough coverage to replace at least 10 years of your salary. For example, if you earn $40,000 per year, you should aim for a $400,000 payout from your policy. You can also add a buffer for inflation and unexpected costs.
• Years-Until-Retirement Method: This method involves multiplying your annual salary by the number of years left until your retirement. For instance, if you're 40 years old and earn $20,000 per year, you would need $500,000 ($20,000 x 25 years) in life insurance coverage to reach the age of 65.
• Standard-of-Living Method: This approach is based on the amount of money your survivors would need to maintain their standard of living if you pass away. If you're between 41 and 50 years old, you multiply your annual income by 20. If you're between 51 and 60, you multiply it by 15. The idea is that your survivors can withdraw 5% of the death benefit each year while investing the principal amount.
• Debt, Income, Mortgage, Education (DIME) Method: This method is designed to provide a minimal amount of coverage to cover essential family expenses in case of an untimely death. It takes into account your outstanding debts (including your mortgage), the cost of your children's education, and the replacement of your income until your children turn 18.
• Online Calculators and Tools: You can use online life insurance calculators, such as the one provided by Forbes, to get a more accurate estimate of your coverage needs. These tools consider various factors, including your income, debts, future expenses, and existing assets.

It's important to note that the ideal amount of life insurance coverage may vary depending on your personal circumstances. It's recommended to consult with a financial advisor or insurance professional to help you assess your specific needs and choose the most suitable coverage options.

Choosing a beneficiary

Understanding Beneficiaries

It's crucial to understand the different types of beneficiaries. There are primary beneficiaries, who are first in line to receive the death benefit from your life insurance policy, typically your spouse, children, or other family members. In case your primary beneficiary dies before or simultaneously as you, you can also name a backup or contingent beneficiary to receive the benefit.

Identifying Your Dependents

Consider who relies on you financially and would need assistance with ongoing expenses if you pass away. This could be your spouse, children, or other family members. You can allocate a percentage of the payout to each beneficiary, ensuring the total adds up to 100%.

Special Considerations for Minors

If you're considering naming minor children as beneficiaries, be aware that if you pass away while they are still minors, the payout process can be complicated. You may need to appoint a legal guardian to receive the payout on their behalf, or consider setting up a trust to manage and distribute the funds according to your wishes.

Updating Beneficiaries

Remember to review and update your beneficiaries after significant life changes, such as marriage, divorce, or the birth of children. You can typically change, add, or remove revocable beneficiaries at any time by contacting your insurance provider or updating your policy online.

Seeking Professional Guidance

Consulting with a legal or financial professional can be beneficial. They can guide you in using the correct language in your policy and ensuring your intentions are carried out accurately. Additionally, they can advise you on any state-specific laws or restrictions regarding beneficiary designations.

Frequently asked questions