Life Insurance Assurance
You have created an estate plan to prepare for your potential incapacity and eventual death. This will spare your grieving loved ones the additional grief of cleaning up your legal affairs. Congratulations!
What have you done to assure their financial security without your paycheck? How will food, clothing and shelter be provided, let alone braces, post-secondary schooling and weddings? Have you taken steps now to create an “instant” estate, if you do not live long enough to build an estate? Enter the miracle of life insurance.
As part of your estate planning, you should consider the financial assurance that life insurance can provide. Your family will need to replace the income you provide for them and life insurance is a proven way to get cash into their hands quickly.
How quickly? It takes as little as 30 to 60 days for your beneficiaries to receive needed funds, after they submit a claim for life insurance benefits. On the other hand, it can take years for a last will to be processed through a probate court. Your family will need to find some way to continue paying the mortgage or rent, buy groceries and take care of all the other financial commitments.
A life insurance company can be required to pay hefty interest charges, if it does not pay valid claims promptly after receiving a valid claim for benefits and a certified copy of the death certificate. Courts face no such penalties, when a last will crawls its way through probate.
Filing a Claim for Life Insurance Proceeds
Many companies offer online claims service, but some still require paper forms that travel by snail mail. Regardless of the claims process, your loved ones will likely need to fill out a claim form and send it to the insurer with bona fide proof of death. They also might submit the original insurance policy itself.
The policy’s contestability clause can delay the payout, if the death occurs during the first two years of the life insurance policy. The insurer can investigate the cause of death for six to 12 months. It will still need to pay out the death benefit, unless the company can prove the insured lied on the insurance application.
Your state insurance commissioner usually sets limits on how much time an insurer can take to review a claim and pay it, deny it, or request more information. In most states, the review period limit is 30 days. However, some companies pay claims as quickly as two weeks after they receive the claim form and death certificate.
Options for Payout of Proceeds
The traditional form of payout for life insurance benefits is a lump sum. This means that the beneficiaries receive all of the money at one time. If you want to replace your income with the life insurance policy, you might want to consider talking with your insurance agent about what payout options the company offers. You might be able to arrange installment payments for a set number of years. These annuity or installment payout options can range from five to 40 years.
The downside of annuity type payouts is that the beneficiaries must pay taxes on the interest income. The policy proceeds usually are not taxable, but interest on the proceeds is taxable. This should not be a concern, since taxes would be owed regardless of where the proceeds are invested and producing income.
Getting Life Insurance Proceeds During Your Lifetime
Some life insurance companies offer policies with an option for the insured to use part of the proceeds during his lifetime, in the event of a significant or life-threatening illness. Some policies even have a long-term care rider allowing proceeds to be used for nursing home care. If you select a policy with these options beyond the traditional death benefits, you will want to be sure that you understand all of the requirements and limitations.
Summary
In the right situation, a life insurance policy may provide financial security for you during your lifetime and essential benefits for your loved ones thereafter. Working together, an experienced life insurance professional can help you acquire the right coverage and an experienced estate planning attorney can help you design an estate plan to wisely administer the life insurance proceeds for your loved ones’ needs.
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