LIFE INSURANCE: Check Your Policy to Protect Your Family’s Future
Life insurance can help protect your family’s financial future if you or your spouse are no longer around. You can also ensure your estate is left to the beneficiaries that you have chosen.
Consider the financial responsibilities your family will inherit when purchasing life insurance. You should also consider your long-term goals, such as your spouse’s retirement and your children’s education. You can decide if you require coverage for a particular time (“term”), such as until your spouse retires or your mortgage is paid off. Or coverage for the rest of your life (“whole-life”, “universal” or “variable” insurance.
Term insurance tends to have lower premiums than other types of insurance. However, it doesn’t build up cash value that you can access. It can also become prohibitively costly as you age. Although premiums for whole life, universal, or variable insurance are higher at the beginning, they may not rise as you age and policies offer protection throughout your lifetime. It is important that you know what type of policy you have and how your spouse will be paid for any loss.
Stop. Call. Confirm.
Before you consult an agent or purchase a policy of life insurance, ensure that the company and agent are licensed to sell insurance within the District. For more information, contact DISB at (202) 728-8000 or visit disb.dc.gov.
What to Read
Your insurance needs change as your life changes over the years. It is important to review your life insurance coverage regularly.
Read your policy carefully before you start your review. These questions should be answered:
- Are premiums and benefits different from year to year
- What are the benefits of the policy?
- Which part of the benefits or premiums is not guaranteed?
- What effect does interest on money received and paid at different times within a policy have?
- What situations can cash values be accessed and how?
- Can the policy be changed into annuity or another type of insurance?
Make sure your policy covers your current needs when you review it. You might need to review your policy to ensure that there are no changes such as a divorce, birth, or new job.
You might consider increasing your death benefit in the event of the birth or marriage of a child. Ask your agent if you need to have a physical examination before you increase your coverage.
Alternately, you might be able to reduce your premiums and life insurance coverage by making lifestyle changes. Your mortgage may be paid, your children might have graduated college, or you might have retired. Your life insurance company may be able offer “conversion privileges” to convert your existing term life insurance policy to a whole-life insurance policy. Your policy may also offer valuable benefits that you can use while you’re still alive. These benefits may be available to you through your insurance agent.
It is important to decide who your life insurance benefits will go to. It is therefore important to review your beneficiaries every few year.
Two types of beneficiaries can be included in your life insurance policy. If you are not there, your primary beneficiaries will receive the entire policy benefit. If a primary beneficiary passes away before you, proceeds are distributed to contingent beneficiaries (also known as secondary beneficiaries). If there is more than one beneficiary, please indicate the percentages you would like for each person to receive the death benefit proceeds.
Your spouse, domestic partner or children can be named as your beneficiaries. Naming individuals, rather than an estate, allows these individuals to receive the proceeds immediately, and generally without taxation. However, the proceeds will be part of your estate and may be subject to estate taxes. The distribution of your life insurance proceeds does not change if your will is followed. If you have any questions regarding how your life insurance benefit will be paid after your death, speak to your tax advisor or family lawyer.
Here are some tips for naming beneficiaries
Spouse It is best to use the legal name of the person, such as “John Wayne Johnson”, rather than “husband”. In the case of a second marriage “husband” can be either the husband at the time you purchased the policy, or the current husband. Consider who is best able to make important financial and family decisions after your death when you review your policy.
Children You can qualify a particular class of people, such as “my kids,” using either “per stirpes”, (according the family tree/branche) or “per capita”, (per head). If your sons have two children, your oldest son will receive the full amount. In the above example, the “my children per capita” designation means that only the living son would be eligible for the full benefit and the entire amount would go to his family.
Minor Children Many insurance companies won’t pay life insurance proceeds for minors. One option is to name a trust the beneficiary. This allows an individual or institution to make use of the funds for your children’s welfare. Your tax advisor or family attorney will help you to establish your trust(s). You can also designate two beneficiaries from your trust, who will jointly decide on the care and welfare for your children. You should make sure to update your beneficiaries as your children age.
If you are the owner or beneficiary of your life insurance policy you can notify your insurance company in writing to change your beneficiaries at any time. When updating beneficiaries, it is important to consider changes in your family, relationships, and life. You can consult your family attorney, tax advisor, or insurance agent to help you avoid unintended consequences.
Finding the right company to service your life insurance policy
You may have been notified by the insurance company that issued your policy for life insurance that they have changed their name or merged with another company. This change should have been made public at the time. It is therefore important that your postal address is up-to-date on your policy. If you have not received an updated policy, you’ll need to find the life insurance company that pays claims.
To search for new company information, you will need the following information:
- You should have all the legal names of the insurance company. This information should be included on the policy.
- You should check to make sure there are a phone number and a mailing address on the policy.
- Find out when and in what condition the policy was purchased.
Once you have all this information, contact your state insurance department where the insurance company was located when the policy was issued. The state insurance department can often track changes in name and/or mergers that have affected the insurance company. The Life Insurance Company Locator System is also available.