One thing insurance agents, financial planners and life insurance lawyers agree on is that life insurance is necessary for people with spouses, partners and children who depend upon the insured’s income. Those insurance agents and financial planners may not agree on what type of life insurance is best, though.

What Kind of Life Insurance is Needed?

Life insurance is an individualized decision. The policy type and amount needed must be tailored to each person’s circumstances. Factors that affect this decision include how many dependents a person has, what future expenses the life insurance is expected to cover and whether the spouse or partner has his or her own income.

These questions and more also help a person decide what type of insurance plan to purchase. The two main categories of life insurance are term insurance and whole life insurance.

What is Term Life Insurance?

Term life insurance is a policy that remains in effect for an agreed-upon number of years. If the policyholder dies within that time period, the insurance company pays the beneficiary the face value of the policy. If the policyholder does not die within that time period, the insurance coverage ends. In essence, what this means is the policyholder paid premiums while the insurance policy was in force but there was no payout.

What is Whole Life Insurance?

Whole life insurance is also called permanent insurance or straight life insurance. Whole life insurance is a policy that remains in effect until someone dies, as long as the premium payments are timely and current. Whole life policies build up a cash value over time that can be used by the policyholder for different purposes. Premium payments for most whole life policies remain the same throughout the insured’s lifetime. The premiums are higher for this type of insurance than for term life insurance.

What are Some Advantages of Whole Life Insurance?

Several types of permanent life insurance are available; whole life is just one kind. Universal life, variable life and variable universal life are three of the more common life insurance options offered.

One reason people choose whole life insurance over term life is that whole life builds up a cash value over time. As the cash value accumulates, the insurer invests a portion of the premiums and interest is earned for the policyholder. Sometimes dividends are paid out to policyholders. The dividends can be reinvested, building up the cash value of the policy or they can be used to reduce the premium payments.

Policyholders may borrow money from the cash value of a whole life insurance policy. A policyholder may also surrender such a policy for its cash value, which is determined at the time of the surrender based on outstanding loans against the policy and unpaid premiums.

The earnings on whole life insurance policies are generally not taxable on a yearly basis. This makes it an attractive policy to consider for estate planning purposes.

Whole life policies provide stability and predictability. The insured has coverage over his or her lifetime, regardless of changes in health. With straight whole life insurance, the insured has fixed premiums for his or her entire life.

Consulting with an attorney experienced in life insurance matters, a financial planner or another life insurance professional is strongly recommended for anyone exploring life insurance options. Insurance attorney Chad G. Boonswang understands the pros and cons of life insurance options and is ready to help you with your decision today.

Most people buy life insurance so that if they die, their families’ financial needs will still be met. The two most common types of life insurance are term life and whole life. Both types require policyholders to make annual payments (pay premiums) so that upon the insured’s death, the insurance company will pay the beneficiary the value of the policy.

The cost of life insurance is based on how much will be paid upon the policyholder’s death, as well as the policyholder’s age, general health, medical history and tobacco use. The younger and healthier a person is, the less expensive the insurance will be.

Key Features of Term Life Insurance

Term life insurance is purchased for a set number of years—a time period that is agreed upon in advance. Some term life policies may be as short as one year (annual renewable term life), but most are available for 5, 10, 20, or 30 years. As long as the premiums are paid during the term, the coverage remains in effect for the agreed upon number of years.

The insurance policy only pays out if the insured dies while the policy is in effect. If the policy expires before the insured dies, the insured may have the option of renewing the policy, but the terms and the annual premium will be different. The premium will most likely be higher, because the policyholder will be older and a primary determinant of the premium is age.

Term life insurance premiums are less expensive than whole life insurance premiums. Sometimes these are called “level term” policies because the premium stays the same as long as the policy is in effect.

Key Features of Whole Life Insurance

Whole life insurance remains in effect for the policy holder’s entire life, as long as the insurance premiums are paid. Whole life policies are more expensive because they accumulate cash value. With most whole life policies, a portion of the premiums is invested by the insurer and it earns interest. The cash value can be used to pay the annual premiums. Sometimes dividends are paid on the whole life insurance policy. These can be paid to the policyholder, re-invested to continue building the cash value or applied toward future premiums.

Different types of whole life insurance policies are available, each with its own stipulations. Universal and variable whole life are common types; hybrids of these are also available. The different types may allow the policyholder to vary the premium, vary how the policy’s cash value is invested and sometimes even change the amount of the death benefits. With permanent whole life policies, the premiums always remain the same and the premium is based on the insured’s age at the time of purchase.

Similarities Among Term and Whole Life

As the insurance industry has changed, more options have become available for policyholders. Some things that used to only be available with whole life insurance policies, such as accelerated death benefits or “living benefits” are now available with many term life policies. The accelerated death benefit allows an insured who meets certain requirements (such as having a terminal illness with death expected in a certain time period) to receive a portion of the life insurance benefit while he or she is still living.

A variety of insurance riders can be purchased for both term and whole life insurance that personalize the policies to the needs of policyholders and their families.

Of course, the most obvious common feature is the calculation of the premium—all life insurance policy premiums are calculated based on the age, health, and lifestyle of the insured at the time he or she applies for the insurance.

Choosing the Right Insurance Policy

Purchasing an insurance policy is an important investment in your family’s financial future. Consulting with one or more of the following professionals, who offer different perspectives on your situation, may be helpful in understanding your options:

• life insurance lawyer
• financial advisor
• life insurance broker.

Life insurance lawyer Chad G. Boonswang helps clients secure their families’ futures by choosing the right insurance for their needs. Contact him today.

After losing a loved one, dealing with daily life can feel like an epic battle. If you have lost one of your parents, you may unexpectedly become caregiver to your other parent. If you are a parent who has lost a spouse, you are faced with dealing with your children’s grief, as well as your own. Unfortunately, the world does not stop to let you get your footing after such a life changing event—bills still need to be paid, children still need to be fed and household chores still need to be done.

Friends and family will often step in to help during a time of grief. Meals will be brought to your home, clothes will be washed and errands will be run. Take advantage of offers of help to the extent you are comfortable doing so. Your energy is best reserved for taking care of yourself and your family.

One area where outside help can provide tremendous relief is in dealing with insurance companies. If you receive a life insurance denial, lawyers who focus on that area of practice can be a tremendous help in numerous ways. In particular, a skilled life insurance denial lawyer:

1. Speaks the language of insurance companies

2. Understands how claims adjusters think

3. Is prepared to go to court

The Language of Insurance Companies

Insurance companies have their own vocabulary. Letters from them are filled with industry jargon mixed with legalese and are nearly impossible to decipher. Lawyers who regularly work with insurance companies are familiar with life insurance policy language, insurance company practices and industry regulations.

With this background, an insurance lawyer can identify the true reason for a claim denial and understand the key issues that need to be addressed to reverse the decision.

How Claims Adjusters Think

Once the main issues in a life insurance denial have been identified, the policy beneficiary needs to plan a response. A lawyer knowledgeable about insurance companies understands the job of claims adjusters. Insurance companies need high volumes of claims processed quickly. If, based on the information an adjuster has, there is an arguable reason to deny a claim, it will be denied. Researching the issue will likely be left up to the beneficiary receiving the denial.

A proficient life insurance denial lawyer will frame your response using the insurance company’s own language and approach to claims. Your response will focus on the facts that rebut the insurance company’s reasons for denying your claim.

Prepared to Go to Court

The goal of insurance companies is to turn a profit every year. To do this, they count on the fact that many claim denials are accepted at face value. In addition, the denials that are challenged often end in a lesser settlement than the value of the original claim. Going up against a team of experienced lawyers who spend every day defending the insurance company against claims sounds like David taking on Goliath. That is another thing the cadre of insurance attorneys count on—it is too intimidating to take them on and they can delay a resolution until even the most tenacious beneficiaries give up.

A skilled life insurance attorney knows these tricks and will not give up. The lawyer you want is the one who is prepared to go to court whenever negotiations begin to stall or the insurance company appears to be acting in bad faith.

Life insurance lawyer Chad G. Boonswang works with insurance companies every day. Contact him now for a free consultation about how you can benefit from his skill in dealing with insurance companies.

In a prior post, we discussed some of the problems that can arise when children are named as life insurance beneficiaries. This post discusses options for parents who want to ensure their children receive life insurance proceeds but want more control over when children can access the funds and for what the funds can be used.

A Parent or Guardian Must Manage a Child’s Finances

Minor children cannot legally manage their own financial affairs. That is the responsibility of parents until children turn 18. If the parents die, states require appointment of a custodian of the property or a custodian of the estate, who acts as the minor’s fiduciary and manages the finances of the child. Guardianships over property end when the minor turns 18. At that time, all remaining money is turned over to the youth.

Uniform Transfer to Minors Act

The Uniform Transfer to Minors Act (UTMA) is a way to postpone giving a child control of financial assets until he or she has turned 21 or older, in some states. When a UTMA is established, a custodian is named to manage the assets until the custodianship ends. The UTMA has been adopted in every state except South Carolina and Vermont, and each state defines the age at which the UTMA custodianship ends. In most states, it ends when the child turns 21, but in some states custodianship can remain in effect until the child turns 25. In a few situations, custodianship could end at age 18.

Enforceable restrictions cannot be placed on the use of UTMA funds. The funds are the property of the minor and when the minor grows up and the custodianship ends, the youth can use the money in any way he or she chooses. The custodian is a fiduciary and must use the assets for the benefit of the minor, but the parent cannot place specific restrictions on the funds. The accounting requirements are less stringent than for a guardianship of the property, but the custodian still must account for the funds.

Trust Funds or Trust Accounts

When parents want more control over the use of money left to their children through life insurance policies, they should consult a life insurance lawyer about setting up a trust for the minor children who are to receive the proceeds of the life insurance. Establishing a trust allows the parents to name the trustee, designate how much money is to be used for what purposes, and control what amounts of money are distributed to the children at specific age intervals.

A trust allows money to be distributed to children much longer into their adulthood, and distributions can be tied to triggering events such as college graduation, acceptance into graduate school, or marriage. Since most parents provide some level of financial support to their children long after age 18, a trust better approximates the longevity of support the parents would have provided had they lived.

The experienced life insurance lawyers at Boonswang Law can help parents explore the best ways to ensure that their life insurance proceeds accomplish their intended purpose—providing financial security for their children through adulthood. Contact Boonswang Law today for a free consultation regarding your life insurance questions.

Since life insurance is often purchased to provide for the needs of children, some people assume they should name their children as the beneficiaries of their policies. However, as well-meaning as this may be, it can actually cause delays in money getting to the children, or worse.

Minors Are Not Legally Able to Manage Their Own Financial Affairs

In most states, including Pennsylvania, insurance money cannot be paid directly to children under the age of 18. A guardian of the property (also called a guardian of the estate) must be appointed to administer the funds. If the parents did not name this guardian in their wills or in the life insurance beneficiary designation, a court will appoint one. The guardian’s responsibility is to wisely manage the funds for the benefit of the child beneficiary. This is a different role from a guardian of the person, who is appointed to raise the children if the parents die or are incapacitated.

Appointing a Guardian of the Property May Delay Release of Insurance Proceeds

If the guardian of the property is not named in the parents’ wills, it may take time for the court to appoint such a guardian, which means delays in the children being able to access the funds. When the funds are accessible, there may be only general guidelines for how the money can be spent. The legal duty of a fiduciary (which is what this guardian is) is to manage the money prudently for the purposes for which it was intended.

Parents’ Plans for Spending the Money May Not Be Followed

If parents have specific wishes for how the money should be spent for the children, such as on a particular private school education or engaging in specific hobbies or sports, there is no guarantee that the money will be spent that way. If the guardian is named by the parents and told by the parents of their wishes, the guardian is likely to follow them to the extent possible. However, when the court appoints the guardian, even the wishes the parents wrote down may not be followed.

Teenagers May Spend Unwisely and Not Save for Future Needs

When the child turns 18, the guardianship ends and all remaining money becomes the child’s, whether it is $5,000 or $500,000. Giving this level of responsibility to a teenager concerns many estate planning and life insurance lawyers. Research on adolescent brain development shows that brain development is not complete until an individual is in his or her twenties, and one of the last parts of the brain to develop is the prefrontal cortex, which helps control impulses. So putting a young person in charge of large sums of money presents a huge risk that the money will not be spent as the parents intended and will likely not last until the youth secures fulltime employment and is able to support himself or herself.

Naming the Contingent Beneficiary Can Be More Challenging Than People Expect

Most married people name their spouses as the beneficiaries of their life insurance policies. Life insurance policies allow a contingent beneficiary to be named. This is the person who receives the insurance proceeds if both parents die at the same time. Instead of automatically naming a child or children as the contingent beneficiary, parents should consult with an experienced life insurance lawyer who understands the ramifications of naming a minor child as a beneficiary.

Anyone with questions about selecting children as life insurance beneficiaries is encouraged to contact Boonswang Law for more information or a free consultation.