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What is “burial insurance”?
“Burial insurance” usually refers to a whole life insurance policy with a death benefit of from $5,000 to $25,000. As its nickname implies, people buy this type of policy to provide money for funeral and burial costs for themselves and/or family members. It is possible to buy a policy after answering a few health-related questions on the application and with no medical exam.
Premiums are payable weekly or monthly. The premium is usually collected at the policyowner’s home or workplace, and the premium is usually a small round number, such as $2 or $3 per week; the death benefit is whatever that premium will buy given the insured’s current age. For example, a $3 per week premium might buy a $6,000 death benefit for a 36-year-old man or an $18,000 death benefit for a 9-year-old boy. Burial policies may be designed to cover one person or everyone in a family. Under some state laws, funeral homes may be licensed to sell burial insurance, but it is mainly sold through brokers and agents of insurance companies licensed to sell life insurance. An approach that is similar to burial life insurance (and sometimes called burial or “pre-need” insurance) is pre-payment of your funeral arrangements. Under this program, you may select the funeral home, type of service, casket (or cremation), flowers, headstone, burial plot, the cost of digging and filling the grave, and other items, and lock in the prices for them by paying in advance.
Should I buy life insurance on my child’s life?
The main reason for buying life insurance on anyone’s life is to replace income “lost” or pay for expenses caused by the death of the insured person. If your child dies, there’s no lost income, but there will be funeral, burial and related expenses that could run to thousands of dollars, which might cause a financial hardship to the parents of the deceased child.
Another reason for buying life insurance on a child’s life is to guard against the possibility that, when the child is older, he or she might not be able to buy life insurance because of intervening illness or other circumstance. Still another reason for buying life insurance on a child’s life is part of a program to teach the child financial responsibility. Typically the insurance is whole life insurance, ownership of which is transferred to the child when he or she turns 21. Most insurance advisors recommend that families spend their insurance budget to buy life and disability income insurance on the parents first, before considering insurance on children’s lives. Death of a parent, particularly an income-earner, could have financial consequences that are devastating compared to the financial effects from a child’s death. Do "empty nesters" need life insurance?
Quite possibly. Here are 10 reasons to own life insurance after your kids have left home: 1.To meet goals
If your children are in college and/or not completely financially independent, life insurance can help “finish the job.” Although you may have saved enough for tuition, the kids’ living expenses (e.g., room and board, laundry, entertainment/activity costs, etc.) continue, but not Social Security benefit payments for the surviving spouse and children—they stop when the kids leave high school.
2.To support other dependents
If you have parents, disabled adult children, or others who depend on you for financial support, life insurance would continue this support if you die before they do.
3.To cover the Social Security “blackout period”
A recent study showed that 5 percent of married women ages 51-64 were poor, but 20 percent of widows that age were poor. This happens because many people don’t plan for life insurance to pay income to the surviving spouse after their kids are grown. As noted above, Social Security pays nothing from when the youngest child leaves high school until the surviving spouse applies for benefits based on the deceased spouse’s record (minimum age for eligibility is 60). This interval is called the “blackout period.”
4.To offset reduced Social Security survivor’s benefits
If a survivor begins receiving Social Security survivor benefits earlier than the full-benefit age (66-67, depending on when the survivor was born), the Social Security benefit amount is permanently reduced. Moreover, because of the deceased’s early death, he or she didn’t get salary increases that might have boosted Social Security benefits further. A life insurance policy can help offset the effect of these “lost” raises.
5.To offset other “lost” retirement savings
Also, because of the deceased’s early death, he or she didn’t get salary increases that might have boosted employer pension benefits and/or IRA contributions. A life insurance policy can help offset the effect of these reduced retirement savings.
6.To meet commitments based on two incomes
Most two-earner couples make financial commitments (e.g., home mortgage, loans, leases, etc.) based on their combined income. Life insurance on each earner enables the survivor to continue to meet those commitments.
7.To pay unplanned expenses caused by an early death
Young people don’t generally plan to have savings available to pay for funeral and burial costs, final medical expenses, estate administration and transfer costs, and federal and state income and estate taxes. Life insurance can cover these costs, which can easily reach tens of thousands of dollars.
8.To create a financial “safety net”
Conventional wisdom says each household should have an “emergency fund” equal to about half a year’s income, to meet surprise unavoidable outlays. If the household does not already have an emergency fund, the post-death family will be even more financially vulnerable without one. Furthermore, it might also be somewhat more difficult for the survivors to obtain credit. Life insurance can solve this problem.
9.To offset lost income if a spouse dies after beginning Social Security retirement benefits
When a couple retires and begins receiving Social Security retirement benefits, each one receives an income. The earner with the larger pre-retirement income gets a benefit based on that income, and the person with the smaller (or no) pre-retirement income gets either a benefit based on his or her own earnings record or half of the spouse’s Social Security benefit, whichever is greater. When one spouse dies, the larger retirement benefit continues but the second benefit stops—in effect, a 33 percent income reduction. Life insurance can offset this income drop.
10.To provide bequests to heirs and charities
If you want to be sure that your heirs and/or favorite charities get money after your death, you can designate some or all of your life insurance benefits to go to them. This is particularly useful if, without the life insurance, your executor would have to liquidate other assets to meet this objective.
How often should I review my policy?
You should review all of your insurance needs at least once a year. If you have a major life change, you should contact your insurance agent or company representative. The change in your life may have a significant impact on your insurance needs. Life changes may include:
1.Marriage or divorce
2.A child or grandchild who is born or adopted
3.Significant changes in your health or that of your spouse/domestic partner
4.Taking on the financial responsibility of an aging parent
5.Purchasing a new home
6.A loved one who requires long-term care
7.Refinancing your home
8.Coming into an inheritance
If I can’t pay my premium, what should I do?
If unexpected expenses come up and you can’t pay your life insurance premium, you should know the possible consequences. The effect depends on the type of policy and coverage you have and the policy terms and conditions.
Term: If you stop paying premiums, your coverage lapses. Permanent: If you have this type of policy, you will have the following choices:
1.Cash out the policy.
This means that you can stop paying the premium and collect the available cash savings. You will no longer be covered by life insurance, but you will at least save some of the proceeds of the policy. You may, however, have to pay taxes on some of the cash value if the sum exceeds what you have paid in premiums.
2.Non-forfeiture options
There may be a “reduced paid-up” option. This means that you can stop paying premiums completely in return for a reduced death benefit and no cash saving. You may also be able to convert the permanent policy to an extended term policy for a time period based on the accumulated cash savings in the policy.
3.Policy will lapse
If this happens, see if the policy can be reinstated. Some insurers may allow this if you do it within five years of lapsing. You will most likely have to pass a physical examination for the reinstated policy and pay back the premiums you would have paid plus interest. Annual premiums for the reinstated policy may be lower than those for a new, comparable policy.
How do I file a life insurance claim?
To begin the claims process:
Get several copies of the death certificate.
Call your insurance agent. He or she can help you fill out the necessary forms and act as an intermediary with the insurance company. (Don’t keep life insurance policies in your safe deposit box. In most states, safe deposit boxes are sealed temporarily upon the death of the owner, which can delay the settlement. ) If you don’t have an insurance agent, or don’t know who the deceased's agent was, contact the company directly.
Submit a certified copy of the death certificate from the funeral director with the policy claim. Once the claim is submitted, a settlement should be issued to you shortly. Once a life insurance claim is submitted, you must determine how the proceeds will be distributed. These are some of the options available:
Lump sum -- You receive the entire death benefit in a single amount.
Specific income provision -- The company pays you both principal and interest on a predetermined schedule.
Life income option -- You receive a guaranteed income for life. The amount of income depends on the death benefit, your gender and your age at the time of the insured's death.
Interest income option -- The company holds the proceeds and pays you interest on them. The death benefit remains intact and goes to a secondary beneficiary upon your death.
How can I locate a lost life insurance policy?
If a family member dies and you are unable to locate his or her life insurance policies, there is, unfortunately, no national or statewide database of all life insurance policies that you can consult. However, you can try to determine: which insurance company might have issued the policy which agent or broker might have sold or serviced the policy whether the deceased might have had insurance through an employer, union or trade association, or other group to which he/she belonged.
Here are some strategies that might turn up useful information:
Look for insurance-related documents.
Search through files, bank safe deposit boxes, and other storage places to see if there are any insurance-related documents. Also, look through address books to see if the names of any insurance agents or companies are listed. An agent or company who sold the deceased their auto or home insurance may know about the existence of a life insurance policy.
Contact current and prior financial advisors.
Contact current or prior attorneys, accountants, investment advisors, bankers, business insurance agents/brokers and others who might have known about the deceased’s life insurance.
Review life insurance applications.
The application for each policy is attached to that policy. So if you can find any of the deceased’s life insurance policies, look at the applications for them. The application will have a list of all other life insurance policies owned at the time of the application.
Contact previous employers.
Former employers may have a record of a past group policy or policies.
Check bank books and canceled checks.
See if any checks have been made out to life insurance companies over the years.
Check the mail for a year following the death of the policyholder.
Look for premium notices or dividend notices. If a policy has been paid up, there will no notice of premium payments due. However, the company may still send an annual notice regarding the status of the policy or it may pay or send notice of a dividend.
Review the deceased’s income tax returns for the past two years.
Look for interest income from and interest expenses paid to life insurance companies. Life insurance companies pay interest on accumulations on permanent policies and charge interest on policy loans.
Contact all relevant state insurance departments.
The National Association of Insurance Commissioners has a “Life Insurance Company Location System” to help you find state insurance department personnel who might help identify companies that might have written life insurance on the deceased. To access that service, click here.
Check with the state's unclaimed property office.
If a life insurance company knows that an insured client has died but can’t find the beneficiary, it must turn the death benefit over to the state in which the policy was bought as “unclaimed property.” If you know (or can guess) where the policy was bought, you can contact the state comptroller’s department to see if it has any unclaimed money from life insurance policies belonging to the deceased.
Contact a private service that will search for “lost life insurance.”
Several private companies will, for a fee, contact insurance companies for you to find out if the deceased was insured. This service is often provided through their Web sites.
Referred from: (http://www.iii.org/) |
