Life Insurance Policies

Although it’s unpleasant to think about, a time will come when the investment you’ve made by purchasing life insurance will come to its fruition when you pass away. The death of a loved one can be a trying and stressful time for a family, because not only do they have to deal with the emotional trauma created by their loss, they also have to deal with the practical matters surrounding a death, such as burial arrangements, reading a will, settling estate and business issues and getting the life insurance claim paid.

Knowledge is power in such situations. The more your family knows about your life insurance policy, the quicker they’ll be able to claim its benefits in the event of your death. Being able to get access to this cash quickly is important because in the event of an unexpected death your family will still have to pay their mortgages, credit cards, medical bills, college costs, etc. Not knowing how to access the policy, or not knowing that it exists, can severely hamper your family in a time of great need.

Most life insurance policies can be collected within just a few weeks or the process could take months, depending on whether the beneficiaries have access to all the documents they need and whether the policy is within the contestability period.

When the insured on a life insurance policy dies, the first step a beneficiary needs to take is to get in contact with the provider of the policy. Once the beneficiary does this, the company will send him or her claim forms and other documents that he or she will need to fill out. There’s a lot of paperwork involved in filing a life insurance claim, so budget the time you need to read, understand and complete all the paperwork. Once you finish the paperwork and submit it, the insurance company can get started on processing the claim. This will involve making sure the policy is valid and possibly investigating the death to make sure it falls within the policy’s coverage.

Things you may need to provide the insurance company include:

• death certificate
• coroner’s report
• copy of the policy

Be prepared for a lengthy investigation if your claim falls within the policy’s contestability period. The contestability period is typically a two year period after the purchase of the policy. The contestability period was brought about as a result of insurance providers’ determination that some individuals had been purchasing life insurance and misleading the insurance policy about the state of their health. Having to pay these claims cost the companies money, and drove up premium prices as the companies had to recoup their losses.

If the beneficiary of a life insurance policy is unable to find a copy of the policy, a useful tool he or she may make use of is the Medical Information Bureau’s Policy Locator database, which is available for $75 at www.mib.com/html/lost-life-insurance.html.

To make it easier for your loved ones to collect on your policy if you die unexpectedly, you need to make sure they know and understand the terms of the policy and have access to the documents they may need. Keep vital documents such as tax returns and insurance policies in a safe place in your home. It may also be advisable to also keep copies in a safe deposit box at a bank.

Communication of financial matters is important in any relationship. That’s why you should inform your spouse or any other beneficiary of your life insurance policy about the existence of the policy, its terms and what benefits they can expect to receive. Division of property and assets after a death in the family can sometimes bring out the worst in people, so to avoid family acrimony, it’s best just to go ahead and clearly inform everyone of what they’re entitled to in the event of your demise.

One thing that you don’t want to happen after your death is for your insurer to deny your life insurance claim. So be sure to be truthful on all forms your insurer sends to you. Don’t lie about pre-existing health conditions or bad habits like smoking. Insurers vigorously investigate suspicious deaths where they may be able to find a way to get out of paying a claim. Don’t fall into this trap by misleading your insurer to save a little money on your premium. Remember, your family’s financial stability may be riding on this.

An unexpected death can put great financial hardship upon a family with funeral costs and continuing life costs such as mortgages and monthly bills. Making sure your family knows how to quickly claim the benefits of your life insurance policy can help alleviate these problems.

Divorce is a stressful and extremely exhausting process. Not only are you having to deal with the emotional fallout concerning the termination of your marriage, you’re also having to deal with the equitable distribution of property accumulated during your marriage, and other financial issues related to you and your spouse’s decision to go your separate ways.

One key asset that is often overlooked when divorce proceedings begin is life insurance. Because it’s money that’s not immediately available, you might not give it as much thought as you would other more accessible property such as a house, car or stocks and bonds. However, life insurance is a valuable asset, and one that you and your former spouse should come to an agreement on regarding its continuation and payment.

A recent case in Florida, Kearley v. Kearley summed up the actions divorce courts can take regarding life insurance policies and benefits. The court in Kearley basically held that divorce courts may value, classify and distribute life insurance policies, can regard life insurance policies as a means to handle unpaid obligations such as mutual debt at the time of a spouse’s death, and can also treat the policy as a source of security to help take care of any alimony or child support obligations in the event of an obligor’s untimely demise.

In short, courts can make a spouse keep another spouse on a life insurance policy in order to help meet any child support or alimony obligations in case the other spouse dies, and courts can also require divorcing spouses to purchase life insurance to meet the support needs of their children should one of the spouses meet an unexpected death.

Courts can also set rules regarding cashing in of an existing life insurance policy. For example, a court may order the equitable distribution of proceeds from the cashing in of a life insurance policy between two spouses. Courts may also order that a divorcing spouse deciding to keep a life insurance policy must pay the other spouse the cash value of said policy.

Divorce courts can also order an injunction restraining a spouse from changing the beneficiary on an existing life insurance policy while proceedings are underway. This can prevent a divorcing spouse from circumventing court rules on division of community property by naming someone else as the beneficiary of the policy.

While courts do have the discretion to order that one spouse keep and maintain life insurance for the benefit of the other spouse, this authority may not be exercised capriciously. A court’s decision to order another spouse to keep and maintain life insurance for the benefit of the other spouse must be based on an alimony or child support award to the other spouse, the ill-health of a spouse and the ability of a spouse to obtain life insurance. In fact, some courts have ruled that a spouse’s duty to keep and maintain life insurance for the benefit of the other spouse ends once any alimony or child support obligation terminates.

Of course, if both spouses agree to waive rights regarding their status as a beneficiary of a life insurance policy, the court may grant this request. Oftentimes in divorce, a spouse will agree to this waiver as a bargaining chip to obtain some other benefit in the divorce agreement, such as the retention of a house, car or other property. Divorcing spouses considering this option should carefully weigh the benefit of what they are receiving against the potential loss of security or support should the other spouse die unexpectedly, especially if they have children to maintain and support. The average cost of raising a child from infancy to age 18 is more than $100,000, a difficult proposition without the expected support of the other spouse.

If a spouse is found to have violated a court order regarding a life insurance policy, there are several remedies available. For example, if the spouse is still living, the court may use contempt powers to fine, jail or compel the spouse to comply with the order.

Many times the other spouse doesn’t find out about the offending spouse’s violation unless he or she dies. If this is the case, the other spouse may go to court and file for the creation of a constructive trust, which would pay the spouse the money he or she is owed from other assets owned by the deceased spouse. For example, a husband constantly reassured his former spouse that he was maintaining the $100,000 life insurance policy he was ordered to maintain, but when he died, it was discovered that he had not. The wife filed for a constructive trust which was held against other policies naming his second wife as a beneficiary.

In conclusion, when obtaining a divorce, it is important to consider the value of a life insurance policy as marital property, and work to ensure the equitable distribution of the policy, or the maintenance of a new policy as surety for any alimony or child support obligations.

Life insurance is a fantastic way to ensure that your family or business is taken care of in case of your untimely demise. Many folks also use it as an investment vehicle, taking advantage of the cash value of their policies and federal regulations making life insurance policy investment earnings tax-deferred.

While life insurance can be used as an investment vehicle, it may not be the best investment vehicle out there. There are a number of other investment options out there that have favorable tax circumstances and that may also provide better returns on investment than your life insurance policy. To choose which option is best for you, you need to understand your life insurance policy, and also understand the other options available.

Life insurance can be good investment vehicle under the right circumstances. Life insurance policies are used as investment vehicles primarily by those who want to take advantage of the tax-deferred status on earnings on the cash value of the policy made through investment. For folks taht have a high tax bracket and need an tax-deferred place to park their money and watch it grow, using life insurance as an investment vehicles is a fairly sound strategy. And there is one circumstance when a life insurance policy is a great way to invest. The downer is that you have to die for your beneficiaries to reap this benefit. If you die while the policy is in force, your heirs will collect the benefits of the policy tax-free, and they can also have any cash value you’ve built up in the policy.

Folks should be aware, however, that many life insurance policies contain fees and service charges related to this type of investment that may reduce the value of their earnings. Insureds should check their policies carefully and ensure that they know everything about the fees and commissions associated with their policy before they use it as an investment vehicle to save for retirement.

If you’re looking for other investment options, consider the following:

401 (k) plans — A 401 (k) plan may be a better option, especially if your employer sponsors a matching program where the employer puts in the same amount you put in, essentially doubling your investment. 401 (k) plans are tax-deferred, meaning that the income you put into the plan is not taxed. For example, if you earn $40,000 per year and contributed $3,000 to your 401 (k) plan, your taxable income for the year only would be $37,000, instead of the whole $40,000.

When the time comes for you to withdraw the money for retirement, there are no fees and commissions like the ones associated with life insurance policies.

Keogh plan — A Keogh plan is a pension plan for self-employed individuals. In a Keogh plan, you can contributed up to 20 percent of your annual income, or $49,000, whichever is lesser to the plan. The contribution is tax deductible. In the Keogh plan, you can start withdrawing funds at age 59 and a half, and must start withdrawing funds by age 70. The Keogh plan was established in 1962 as a means for self-employed individuals to save for their retirement. There are a lot of administrative burdens and upkeep costs associated with the plan, but it remains popular because of the high contribution limits.

IRA — An IRA is an investment tool that you can use to set aside money for retirement. Contributions to your IRA are tax deductible up to a certain point. When you withdraw the money, you’ll be assessed taxes on that income. This may be advantageous because your income is likely to be lower after you retire, meaning you’ll pay less money in taxes then.

Roth IRA — The Roth IRA is a retirement plan that is similar to the IRA, but does not allow tax deductions for contributions. Instead, distributions are exempt from taxes. However, if you withdraw funds from the plan before you are eligible to do so, you will incur a tax penalty. Qualified withdrawals include those taken after age 59.5 or after one becomes disabled, those taken to purchase a first home, or the withdrawal of a deceased plan member’s funds by a beneficiary. Depending on your income and investment strategy, getting your tax deferral on the distribution side rather than the contribution side may be more advantageous.

Before purchasing life insurance or investing in any other retirement savings plan, it’s best to consult with a financial planner you can trust. It’s also helpful to know how much income you’re likely to make in the future, and to have a savings blueprint for your retirement. With good information and good planning, your financial advisor can guide you toward making the correct decision regarding your retirement.