Financial Empowerment and Mindfulness (Track Your Life Insurance Coverage Information)
Life Insurance provides a financial safety net for your family if a family member dies. Ensuring that your income is protected if the unthinkable happens is smart planning. The proceeds from life insurance can cover the mortgage payments, college tuition expenses and even funeral costs.
There are 2 main types of insurance; Term Life Insurance and Permanent Insurance (Whole, Universal and Variable Life Insurance). It is important to understand the differences between the 2 types of insurance so you can understand what type of policy, if any, will fit the needs of your family.
Term Life insurance
Term Life Insurance provides coverage for a certain period of time, so if a person who is covered dies within the term, the beneficiaries receive the payout.
The term is selected when the insurance is purchased. Common terms are 10, 20 or 30 years. Think about the term that is needed for your family. Do you need life insurance to replace your income over a certain period of time? For example, when your children have graduated college and are supporting themselves, you may no longer need life insurance.
Permanent Life Insurance
Whole Life Insurance is the most used type of Permanent Life Insurance. Whole Life Insurance provides life-long coverage and includes an investment component, called cash value. The cash value grows tax – deferred, which means that you do not pay taxes on the gains while they are accumulating.
You can also borrow money against the cash value, but if you do not repay the loan(s) with interest, the death benefit will be reduced.
You can also surrender the policy, which means cancel the policy, and you will receive the accumulated cash value, but you will no longer have life insurance coverage from this policy.
Typically, the premiums for Whole Life Insurance policies remain the same but they are more expensive than Term Life Insurance policies because they are designed like a savings account.
Whole Life Insurance may be the right vehicle for you if you have a child with special needs to provide care after you are gone.
Best Practices for Couples
- Maintain joint, secure access to original insurance policy documents;
- Hard copies and policy documents should be kept in a fire proof location;
- Digital copies should be kept for back-up;
- Create a summary of the family’s life insurance policies that includes the following: policy owner, policy number, carrier, policy type, insured party, death benefit amount and/or cash value, term, premium amount/payment schedule, payment schedule/annualized due dates, address to which the premium bill is mailed, listed beneficiaries; insurance agent contact information, insurance carrier/underwriter contact information for claims/general information.
[The advanced check list illustrates the level of detail that begins to be explored when prepping in a divorce proceeding]
Inventory and Key Metrics
Do you or your spouse own a life insurance policy?
Who is the Owner?
Who is the insured?
What type of policy (term or whole) is it?
If it is a term policy, what is the term and when does the term expire? What is the annual premium?
What is the death benefit amount?
Who are the beneficiaries (the people who receive the money upon death)?
What is the life insurance company that is providing the life insurance?
Do you have an insurance agent who assisted with the purchase of the life insurance?
If so, what is their name and contact information?
Do you know how to access the actual life insurance policy?
Do you know where the premium bill is sent?
Do you know the deadline that the premium payment is due?
DIVORCE RELATED TIP
A spouse is not permitted to cancel a life insurance policy once a divorce proceeding is commenced as Connectuct proceedure puts automatic orders are in place to protect the status quo so as to prevent such changes. Also, there may not be any change to the beneficiary status of any life insurance policy once a divorce has started. It is important to know not only what life insurance exists when a divorce action is commenced, but the amount of the death benefit and the list of beneficiaries.
See Alimony FAQs; Lifetime Alimony and Alimony Payments After Death;
Attorney Melissa Needle is a lifetime resident of Connecticut. She was born in New Haven and raised in Fairfield. Her family has deep roots in Connecticut and she is a third-generation attorney. Since her admission to the bar in 1990, Ms. Needle has practiced matrimonial law exclusively.