Choosing the right life insurance protection and choosing the right amount of coverage are important choices for you and your family.
Knowing what a life policy can do for you and your loved ones, and how to protect it for their future use, can be two important factors in your financial planning. Since September is designated as Life Insurance Awareness Month, this is a good time to review your knowledge of these valuable aspects.
Kansas Insurance Department staff members emphasize the following life policy considerations.
• What kind of life insurance do you need? Term and whole life insurance are the two most common types of plans. However, there are many variations of each type, as well as a number of special-purpose policies that combine the basic policies with other elements. Discuss the best choice with your insurance agent.
• Who is your beneficiary going to be? If you die without naming a beneficiary or beneficiaries of your policy, the benefits would be paid into your estate, then paid out according to your will or through state laws. This delays payment and could create a financial hardship for your heirs.
• Will I have any tax consequences? Your beneficiary(ies) will receive your insurance benefits tax free. With named beneficiary(ies), life insurance benefits do not have to go through probate or other legal delays regarding your estate.
• How much coverage do you need? You and your agent should do a careful evaluation of your coverage needs. This should include the debts you now have and any future income that would be necessary. Some estimates say that you should have coverage that is equal to 5-7 times your annual take-home pay, but other estimates go as high as 20 times that amount.
• Where should I keep my policy? Keep your policy in a safe place. However, do not use any place where the policy might not be readily available. Record the basic information — such as company, policy type, policy number, insured’s and beneficiaries’ names — in a separate place. Let your beneficiary(ies) know the kind of insurance policy you have, any changes you make, and where you keep the policy.
• What happens if I lose my policy? Loss of a life insurance policy will not affect your protection in any way. If a policy is lost, accidentally destroyed or stolen, ask your agent or write the company directly to obtain a duplicate.
• Do life insurance proceeds affect my family’s Social Security benefits? According to law, monthly life insurance payments will not disqualify the beneficiary from receiving full Social Security payments. Monthly life insurance benefits do not count as earned income, regardless of how much is paid each month through a policy.
• What happens when my family needs to file a claim? Family members, preferably with policy in hand, will need to notify the life insurance company in the event of a death of an insured person. Your local insurance agent should be able to discuss the steps needed to make sure the policy is disbursed quickly.
• Filing a life claim. Your beneficiary will need to notify the life insurance company of your death. Again, that’s why it is important for your beneficiary to be able to locate your policy. Companies require a certified death certificate or other legal proof of death, and they may ask for the policy. The life insurance company will pay the proceeds of the policy to your beneficiary(ies) after receiving proper notification of death. You might ask your funeral planning directors if they can assist with this.
Talking over your life insurance needs with qualified insurance professionals is a good first step toward assuring your assets are best used by your family.
Ken Selzer, CPA, is the Kansas Commissioner of Insurance.