What’s the Best Way to Make a Life Insurance Claim?

You might get a phone call, a letter or even a text that claims you are the designated beneficiary of their life insurance policy. If and when that happens, request the paperwork. When the person has passed away, it will make the request for the life insurance claim much easier.

Forbes’ recent article entitled “How To Make A Life Insurance Claim” says that the life insurance claim process should begin while the policyholder is still alive. He or she should let you know the location of the insurance policy. Make sure it’s in a safe place.

One of the key documents you’ll need to claim the proceeds of the policy is a certified death certificate—usually obtained from the local health department—and the company’s claim form. With these documents, a life insurance claim payment can happen pretty fast.

However, there can be some hiccups. Make sure that you’re still the beneficiary, because it’s possible that the policyholder changed his or her mind, or chose to put the proceeds into a trust that would make the payout, particularly if there are multiple beneficiaries. The insurance company can tell you if you’re not the beneficiary, but it’s not required to tell you who is. That would require legal action, and even then you might not be successful, unless you can show the proper procedure wasn’t followed, a beneficiary change was made under duress, or there was “undue influence” or lack of capacity.

You also may discover that in the last days or months of their life, the policyholder stopped paying premiums and let the policy lapse. If so, don’t hesitate to act fast to “reinstate” the policy.

A beneficiary can also hit another timeline, which is the two-year window of contestability by the insurance company. This could be an issue if the policyholder left out vital information when applying for the policy—such as the fact she was a heavy smoker—and then winds up dying of lung cancer. In these cases, the company can void the policy. In addition, perhaps the person who bought the policy was considering suicide. This would also void the policy within the first two years after the purchase.

After two years, the contestability issues typically expire, and there’s no time limit on getting paid, if you’re the beneficiary. However, it’s wise to file a claim fast, you can still be paid years afterwards.

You usually have some options as to how you get the proceeds. One is a lump sum for the entire amount to which you’re entitled. You can also deposit the money into an access fund. That is an interest-bearing account, where the cash can be withdrawn over a period of time. Finally, you can take it in annual installments, like an annuity. Life insurance benefits are also tax-free.

Reference: Forbes (June 8, 2020) “How To Make A Life Insurance Claim”


What Can I Do to Plan for Incapacity?

Smart advance planning can help preserve family assets, provide for your own well-being and eliminate the stress and publicity of a guardianship hearing, which might be needed if you do nothing.

A guardianship or conservatorship for an elderly individual is a legal relationship created when a judge appoints a person to care for an elderly person, who’s no longer able to care for herself.

The guardian has specific duties and responsibilities to the elderly person and on-going reporting requirements to the court.  When a loved one becomes incapacitated and needs the court to appoint a guardian and/or conservator, some event, such as the need to enter a long term care facility and/or need to access financial resources of the incapacitated individual, triggers the need for the appointment.  Not having the necessary documents identifying the agents to act on behalf of this person creates additional stress that could have been avoided with a little planning while he/she/you were well.

FEDweek’s recent article entitled “Guarding Against the Possibility of Your Incapacity” discusses several possible strategies.

Revocable (“living”) trust. Even after you transfer assets into the trust, you still have the ability to control those assets and collect any income they earn. If you no longer possess the ability to manage your own affairs, a co-trustee or successor trustee can assume management of trust assets on your behalf.

Durable power of attorney. A power of attorney (POA) document names an individual to manage your assets that aren’t held in trust. Another option is to have your estate planning attorney draft powers of attorney for financial institutions that hold assets, like a pension or IRA. Note that many financial firms are reticent to recognize powers of attorney that are not on their own forms.

Joint accounts. You can also establish a joint checking account with a trusted child or other relative. With her name on the account, your daughter can then pay your bills, if necessary. However, note that the assets held in the joint account will pass to the co-owner (daughter) at your death, even if you name other heirs in your will.

There may also be health care expenses accompanying incompetency.

This would include your health insurance and also potentially disability insurance in the event your incapacity should happen when you are still be working, and long-term care insurance, to pay providers of custodial care, at home or in a specialized facility, such as a nursing home.

Reference: FEDweek (March 5, 2020) “Guarding Against the Possibility of Your Incapacity”


What Do I Need to Retire?

Research from the Employee Benefit Research Institute’s Retirement Confidence Survey shows a lack of preparation in retirement planning. According to the annual survey, 66% of those 55 years and older said they were confident they had sufficient savings to live comfortably throughout retirement. However, just 48% within the same age group haven’t figured out their retirement needs.

Kiplinger’s article entitled “Ready to Retire? Not Until You’ve Done These 3 Things” says knowing where you are now and knowing what you’ll need and want in retirement are important to protect your portfolio throughout your golden years. If you want to retire at 65, then age 55 is when you’ll want to start making some important decisions.

Let’s look at three steps to take in your last decade of your working years to help create a safety net for a long retirement:

At 10 years or more before retirement, you should diversify your tax exposure. You may have a large portion of your portfolio in an employer sponsored 401(k) or in IRAs. These tax-deferred accounts give you plenty of benefits now, because you’re not taxed on the contributions. At age 50 and older, you can make additional catch-up contributions that let you put away $26,000 in 2020 in your 401(k) each year. Because you’re probably going to pay a lower tax rate in retirement when you begin taking taxable withdrawals, it gives you a nice tax advantage today.

In the years before your retirement, build assets in tax-free accounts for flexibility, so you can keep tax costs down in retirement. Assets in a Roth IRA or a Roth account within your 401(k) can give you a source of tax-free income in retirement. You paid taxes on the money you put into a Roth, so it grows tax-free and withdrawals after age 59½ are income tax free. If you’re over 50, then you can add up to $7,000 into the account this year.

When you are five years from retirement, create a health care plan. A huge expense in retirement is health care. Plan for out-of-pocket health care costs as well as long-term care. Taking advantage of a health savings account, if you’re in a high-deductible health insurance plan is a good way to save for the out-of-pocket health care expenses that won’t be covered by Medicare or your private health insurance. You can fund an HSA up to $7,100 for families ($8,100 if you’re 55 or older). Contributions are made on a pre-tax basis, so your account grows tax free, and withdrawals are tax- and penalty-free, if used for qualified health care expenses. You should also look at long-term care insurance.

When you’re just a year from retirement, start spending as if you’re already retired. Be sure you can live comfortably, when spending at your retirement budget.

No one can see the future, but you may be able to limit the effects of shocks to your retirement savings.  Adding in these layers of protection at least 10 years prior to retirement, can help you secure your retirement goals.

Reference: Kiplinger (Jan. 24, 2020) “Ready to Retire? Not Until You’ve Done These 3 Things”