Life insurance helps secure your family's financial future after the death of you or your spouse. It also helps ensure that the estate that you have worked to build over your lifetime will be allocated to the beneficiaries you have chosen. When purchasing life insurance, you should ask yourself several questions to help lay out your life insurance needs:
- What financial responsibilities will your family immediately inherit - such as a mortgage or car loan?
- What long-term goals will your family still have - such as your spouse's retirement or your children's education?
- How much of the family income do you provide?
- Who else besides your family depends on you financially?
- How will your family pay for your final expenses and repay debts after your death?
Term Life versus Cash Value
If you decide that you need more coverage, you should then determine whether you need Term Life insurance or a Cash Value policy. It is important to know which type of policy you own, and how the benefits are paid if something happens to you or your spouse:
|Term Life Insurance||Cash Value Policies|
|Term Life covers you for a term of years - as short as one year or as long as 30 years. Term policies generally have lower premiums in the early years, but do not build up a cash value that you can access.||Cash Value policies come in the form of Whole Life, Universal Life or Variable Life insurance. Each of these products usually offers coverage as long as you live. An important difference between these products and Term Life insurance is that once you have paid your premiums for a number of years, the policy will have a cash value attached to it.|
Reviewing Your Life Insurance Policy
As your life situation changes through the years, so do your insurance needs. A regular review of your life insurance coverage is important. To begin your review, read your policy carefully. Look for answers to these questions:
When reviewing your policy, make sure the benefit covers your current needs. Changes - such as a birth, divorce, remarriage or even a new mortgage or job - are indicators that you might need to increase your benefits or coverage.
Alternatively, your life changes might allow you to lower your life insurance coverage and premiums. The mortgage might be paid, you might have retired or your children might have completed college. At this stage of life, your life insurance company might be able to offer "conversion privileges" from your current term life insurance policy to a new whole life insurance policy. You might also be able to expend your death benefits so they can be used while you are still living. Ask your insurance agent or company about these options.
One of the most important decisions to make regarding life insurance is to whom to leave your benefits. That is why it is important to review your beneficiaries every few years.
There are two types of beneficiaries for your life insurance policy. Primary beneficiaries receive a portion or the whole policy benefit if they outlive you. Contingent beneficiaries - also referred to as secondary beneficiaries - receive proceeds if a primary beneficiary dies before you.
You can name your spouse, children, grandchildren, relatives, friends, charities, businesses, trusts or your estate as your beneficiary. Naming individuals rather than an estate allows those individuals to receive the proceeds immediately and, generally, without taxation. Your will does not affect the distribution of your life insurance proceeds unless the sum goes to your estate to be divided according to the will. Check with your insurance agent, tax advisor or family lawyer if you have questions about how the life insurance benefit will be paid following your death. Here are some tips for naming beneficiaries:
|You should use the individual's legal name, as in "John Wayne Johnson," rather than "husband." In case of a second marriage, "husband" could be interpreted either as the husband when you bought the policy or the current husband. When reviewing your policy, think about who will be in the best position to make financial and other important family decisions upon your death.||You should qualify a specific class of individuals, such as "my children," by the use of either "per stirpes" (according to the family tree or branch) or "per capita" (per head). A designation of "my children per stirpes" means that if your two sons have two children each, and your oldest son dies before you do, his children will each receive his share of your benefits. A designation of "my children per capita" means that the living son, in the case above, would receive the full amount and your oldest son's family would receive none of the benefit.||Most insurance companies will not pay life insurance proceeds to minors. If any of your children are minors, one of your options is to designate a trust as the beneficiary, with an individual or institution to use the funds for the welfare of your children. Trusts can be set up by your family attorney. Another option is to designate two individuals whom you trust as beneficiaries, who will make joint decisions about the care and welfare of your children.|
If you are the owner of your life insurance policy, in most cases you can change beneficiaries at any time by completing a formal, written notification to your insurance company. During a regular review of your life insurance policy, take into consideration changes in your life, relationships and family - such as births, adoptions, marriages, remarriages, divorces and deaths - when updating your beneficiaries.
Changing Your Policy
After reviewing your current policy, you might decide that you want a totally new life insurance product. If you already have a life insurance policy, do not cancel it until you have received a new one. You then have a minimum period to review your new policy and decide if it is what you want. Keep in mind that you may not need to cancel your current policy in order to get the coverage or benefits you want. Talk to your insurance agent or insurance company to see if they can make changes to your current policy
Locating Your Life Insurance Company
It is possible the company that issued your life insurance policy has changed its name, merged with another company or sold your policy to another insurance company. You should have been notified of this change at the time it happened. For this reason, it is important to make sure your mailing address is always current on your policy. However, if you did not receive an updated policy, you will need to locate the life insurer that services and pays claims on your policy.
In many cases, you can contact the Division of Insurance to assist you in finding the new name of your insurer. You should have the full legal name of the company that issued the policy and the state where the policy was purchased. The Division can usually track name changes and/or mergers that impacted the insurance company.
Contact the Division of Insurance
If you have questions about any insurance product, contact the Division of Insurance by calling our consumer hotline--- 617-521-7794 -- or visit our website at www.mass.gov/doi.
Stop. Call. Confirm.
If you are unsure about the insurance company you are dealing with, STOP before signing any paperwork or writing a check; CALL your state insurance department - easily reached by phone; and CONFIRM the company or agent offering insurance is legitimate and licensed in the state.