How do you determine what kinds of life insurance policies are held, what are the costs to maintain these policies, and what benefits are available from them?
First, determine how many policies are held and make a list of the name of each insurance company and the policy numbers.
For each policy you need to know:
- What type of life insurance is it?
- Are premiums still due?
- Is there cash value available?
- Who is the owner of the policy?
- Who are the beneficiaries?
You can tell by looking inside the original policy, but for the most up to date information find a current policy statement. (Calling the agent listed on the policy should be very helpful in acquiring this information.)
If the insured has a good relationship with their life insurance agent, the agent can be a very helpful resource in times of need. If the owner is deceased and you are listed as a beneficiary, your agent can help you with all of these details. Due to privacy policies and insurance regulation, only the owner of the policy has access to any information during their lifetime unless there is a power of attorney.
Types of Life Insurance:
Whole Life, Universal, and Variable Universal types of policies can all have "cash values" (monies that can be used during lifetime) as well as death benefits. If it is a "cash value" type of policy, the current statement should reveal the current cash value and current "cash surrender value." The "cash surrender value" is the current amount that a policy can be redeemed for, net of any surrender charges that may still be in effect. The "death benefit" is the amount of cash that the beneficiaries will receive upon the death of the insured. The amount of the death benefit will be reduced by loans or skipped premiums.
Term Insurance can come in 1, 5, 10 and 20 year terms and has no cash value, only a death benefit if the policy is in force when the death of the insured occurs. The death benefit amount of the policy is usually the "policy amount".
Borrowing From A Life Insurance Policy
If you find that your loved one has the "cash value" type of life insurance, those funds can be used to help pay any expenses, including the premiums. The owner may be able to borrow up to 90% of the cash value and still keep the policy in force. Borrowing from the cash value of a policy will reduce the death benefit. You should contact the insurance company for a specific calculation.
Look for Additional Benefits
The policy may have a "Waiver of Premium" benefit which means: if the insured is disabled, the insurance company would be responsible to pay the premiums under the guidelines of the policy. (This benefit usually drops off after age 65).
There also may be a provision in effect that allows access to a portion of the death benefit if the insured is terminally ill and has only one year to live. It can be referred to as the Living Benefits Rider or Accelerated Benefits Rider or other. Contact the insurance agent or company to determine if this benefit is an option.
No matter which type of policy it is, make sure the premiums continue to be paid up until the death of the insured.
Linda Fergusson is a comprehensive Financial Planner with an expertise in providing her clients with sound financial and insurance planning strategies. She is passionate about helping people protect and maximize their assets, and she uses her experience in Business Coaching to help facilitate the right financial and insurance plan for each client. She has been an agent with New York Life since 1998 and is a registered representative for NYLIFE Securities LLC (member FINRA/SIPC) since 1999. She has also been the board President and a board member of various business associations in Northern California.
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