Maximize Your Life Insurance Benefits: Ask These 4 Important Questions
As much as life insurance is most definitely not the most captivating topic, it is a cornerstone of the financial plans of many people, and there are some details that sometimes get overlooked. Here are the four questions you should be asking to get the most out of the benefits of owning life insurance.
1. Have circumstances changed your life?
Waiting to review your current life insurance can really cost you money. If it has been a while since you last reviewed it don’t wait any longer, get to it. Life quickly moves on as families change and grow, and so does the need for life insurance. The death benefits that come with life insurance come with a number of uses other than just replacing the income from the breadwinners of the family. Death benefits can be used to cover college costs, fund a business, pay the mortgage off as well as some debts. It can also be an excellent tool for estate planning.
You need to have a solid safety net that will provide the people you love against untimely death. In the case of divorce and remarriages that safety net can extend to them as well. Seeing as caregivers and stay-at-home spouses could bring up a number of costs that were not for-seen while replacing their services for the survivor, it is important to take life insurance on their lives as well.
2. Are your beneficiaries up-to-date?
Here are a few do’s and don’ts if it has been a while since you last updated your contingent and primary beneficiaries.
– So as to ensure death benefits directly pass to beneficiaries income tax-free, do designate a trust or named individual to avoid probate.
– To avoid allowing creditors placing claims against the estate and proceeds getting tangled in probate, do not designate your estate.
– Depending on the estate, and if the beneficiaries are minors, assets are paid to them, either when they turn 18 or 21. So do not name minors as beneficiaries.
– Government benefits named to a special needs adult or child will likely be disqualified for the reason of them not being eligible to receive them so don’t name them directly.
3. Should you consider a trust?
A trust will allow you to have more terms that are specified with intent that is more controlled if the designated beneficiaries are special need individuals, minor children or a loved one who lacks financial sensibility. It is advisable to work with an estate attorney when establishing a proper trust for the purpose you intend seeing as trusts can be revocable or irrevocable.
4. Do you know policy exclusions?
Like in any other contract it is important to read the fine print, and life insurance is an important contract.
The Contestability Period
This is a time when an insurance company has the right to cancel coverage, deny a claim if there were misstatements or ommisions made in the life insurance application and as well have the right to contest any information given. This period is usually two years after the date the life insurance was issued. Your claim can be denied if you die within the contestability period and an investigation finds that you had facts that were misrepresented even if the actual misrepresentation had nothing to do with your death.
Suicide clause: nearly every life insurance policy has a suicide clause, where if the insured dies by suicide during the first two years of the policy the return premium and death benefits will not be paid. Other exclusions include; illegal activity, dangerous activity for example sky diving, aviation exclusion for travel by private plane, drugs and alcohol.
