What To Know About The Two Basic Kinds Of Life Insurance Beneficiaries

Close up on a file tab with the word life insurance, focus on the main text and blur effect.Most people who take out a life insurance policy are doing so to help protect their loved ones in the event that the primary policyholder passes away unexpectedly. This can be an important financial contribution to continue supporting your loved ones and it is imperative that you understand how the policy works. The policy is taken out under a specific face amount, which is the lump sum that your family or chosen beneficiaries will receive when you pass away.

So long as the policy is maintained as active through regular premium payments, your loved ones will be able to file a claim with that life insurance carrier when you pass away. It is on you to decide on a life insurance beneficiary to receive those assets after you pass. There are a number of financial, tax and legal related implications that can all happen if you do not appropriately name a beneficiary. This means understanding the difference between primary and contingent life insurance beneficiaries.

A primary beneficiary is the people or persons who will receive the proceeds of the policy when the insured owner passes away. However, the beneficiary is not eligible to receive any proceeds if they pass away before the death of the insured party.

A contingent beneficiary is also known as a secondary beneficiary. This contingency beneficiary is only eligible to receive proceeds on a policy if the primary beneficiary passes away before the insured party. This makes it extremely important to understand how to select an appropriate life insurance policy and to name both primary and contingent beneficiaries to support your family’s unique needs. Make sure that a life insurance policy is part of your established estate plan by working with an experienced and knowledgeable estate planning lawyer in Virginia Beach.

Study Shows Americans Look at Trusts, Wills and Life Insurance In 2020

There are always good reasons to update an estate plan, such as big changes in laws impacting estate and gift taxes or changes in your personal life that warrant new beneficiaries. But world events or family events might also prompt you to rethink your strategies.

As the coronavirus pandemic has made the topic of death unavoidable, more people than ever stepped back to look at their existing estate plans or to craft strategies to close those gaps.

According to the MIB Group, the number of life insurance applications for people younger than age 44 increased by over 7% in 2020 despite the fact that applications for life insurance had been down in the previous years. The creation of key estate planning documents, such as a will were also up due to covid-19. One study recently completed by LegalZoom.com found that over 30% of people between the ages of 18 and 34 created wills directly as a result of the pandemic and its unexpected impacts.

Preparing for death can be difficult and an uncomfortable topic to discuss with your loved ones but it can also be especially important to have these conversations well in advance of a crisis.

If you need support crafting your estate planning documents or discussing whether or not your existing strategies help to accomplish your individual goals, it’s a good idea to have an existing relationship with an estate planning law firm in Virginia Beach that can help serve as an important resource for you during these times.

Do I Really Need Life Insurance Beneficiaries?

So you already have a life insurance policy in place as part of your estate plan- smart move. As part of your application and final policy approval process the company probably gave you a beneficiary form.

This form is extremely important and should not be ignored. Even if you write in your will that your life insurance policy will be given to a certain family member, you should know that the forms filed with the insurance company for your beneficiaries take precedence when your estate is administered.

This is also because your estate passes outside of the traditional probate process. These forms are key for telling the insurance company who gets all or part of your policy proceeds, so they should be filled out and then reviewed each year as well.

If you’re new to life insurance as part of your overall estate plan, you are not limited to just one beneficiary. You can list both a primary and contingent beneficiary so that there’s a backup, and you can split the proceeds of the policy between different parties so long as you allocate these percentages properly on the beneficiary forms.

Most people use life insurance policies to help when there is a need for general living expenses or for a big expense like paying off a mortgage or for a child’s college tuition. Since a will can get tied up in probate for a long period of time, the life insurance policy can help your family get back on their feet sooner rather than later.

In conjunction with a will, a trust, and other estate planning tools, you’re empowered to cover a lot of bases with your Virginia estate plan. If you have questions about the process or need help creating these documents, a Virginia estate planning lawyer can help you create a comprehensive and unique strategy.

Do You Still Need That Life Insurance Policy?

As retirees look towards possible longevity issues that could mean they are alive for 20 or 30 years after entering retirement.  The determination of appropriate cash flow and what expenses you still need to pay is vitally important for your future.
Without the support of an experienced estate planning lawyer and financial professional, you could make mistakes in the planning process that could jeopardize your ability to have the funds that you need for your future.  For this reason it is a good idea to sit down and list out all of your current expenses.
To figure out whether what you are paying for still makes sense in the grand scheme of things.  Purchasing a life insurance policy is a common rite of passage for people still in their working years.  This is primarily because there are a number of different needs that much be protected for your family if something were to happen to you suddenly.  What happens after you reach your retirement milestone and are instead looking towards a successful retirement and possibly many more years.
This means proper evaluation of whether or not that life insurance premium you have been paying out of habit is still in your best interest.  A consultation with a knowledgeable estate planning professional and a financial advisor can help to reveal which of these is appropriate and when it may be time to ditch the policy.

Less Costly Options Exist To Afford In-Home Care

While in-home care for elderly parents or other relatives may be a kinder approach than placing them in a nursing facility, it can also be a very pricy proposition.

English: My parents.
(Photo credit: Wikipedia)
A recent Caring.com article offers some creative approaches to affording this option.
“In general, pay rates in urban areas are higher than in rural communities, and still higher on the east and west coasts than in the central United States,” according to the article. “Costs also depend on whether you’re looking for homemaker services, defined as ‘hands-off’ care, such as cooking, cleaning, running errands, and general companionship, or home health aide services, which include personal care, such as bathing and dressing. A comprehensive 50-state survey of care costs by MetLife found that as of 2011, average hourly rates for home health aides ranged from $16 to $29 across the country, while rates for homemaker aides without medical training ranged from $13 to $24. These rates do not seem to be changing much over time. According to Genworth’s 2012 data analysis, the median rate for in-home care of $18 to $19 an hour nationwide is rising by only 1.15 percent every five years.”
Among the advice on making this sort of care more affordable are reversible mortgages, pensions for veterans that may have previously gone untapped and making alterations to life insurance policies no longer needed to care for others.
“The way this works is that your loved one sells the policy back to the issuing agency for 50 to 75 percent of its face value, an amount determined based on the amount of the policy, the monthly premiums, and the policy holder’s age and health,” the article stated. “There may be restrictions; some policies can only be cashed in if the policyholder is terminally ill. But many are quite flexible. And if yours isn’t, there are settlement companies that will buy the policy, also at 50 to 75 percent of face value, then pay the premiums until the policyholder’s death, when the company will collect the benefits.
“If the company that issued the policy won’t cash it in, don’t worry. Your loved one may be able to sell the policy for a ‘life settlement’ or ‘senior settlement.’ In this case the settlement company pays the premiums until the policyholder dies, then receives the benefits that would originally have gone to the policy’s original beneficiaries.”

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