LIFE INSURANCE - DO YOU KNOW THE DETAILS OF YOUR POLICY?

Do You Know the Details of Your Policy?

A life insurance policy is a contract or an agreement between two parties. If you have life insurance, your written policy is the contract between you and the insurer. You are referred to in the policy as "the insured." While you may not readily recall having done so, you have designated an owner of the policy and you have also designated beneficiaries.

In most instances, the insured person owns the policy. However, under certain circumstances, a person or corporation can own a policy of life insurance on another individual. If you have a significant ownership interest in a corporation, it might be sensible for the corporation to own a policy of life insurance on your life. Without such insurance, it could be financially difficult or impossible for the corporation to survive your death. If the corporation owns the policy, corporate funds should be used to pay the premiums.

For estate planning purposes, it is sometimes wise to title life insurance in a simple insurance trust. Remember that if you place ownership of your life insurance in an insurance trust or in your corporation you will give up much of your right to control the policy since you do not actually own it. Do you know who owns your life insurance policy? Do not assume that you are the owner just because you pay the premiums.

No matter who owns a policy, the policy itself clearly identifies who is entitled to the death benefits. This person or entity is called the beneficiary. For estate planning purposes, you may want to designate a simple trust as the beneficiary of your insurance.

Typically, a policy owner can only change the beneficiaries by following the insurer's strict requirements for beneficiary changes. Usually, those requirements involve the use of the insurer's form. Do not try to change your beneficiaries by leaving life insurance to someone in your will. The insurance contract and the most recently named beneficiaries under it will control. Your will has no effect on directing payment of your life insurance benefits unless you have properly set up a life insurance trust that is clearly identified both in your estate planning documents and in your insurance policy.

Do you know who your primary and secondary beneficiaries are? You should name as primary beneficiaries those individuals to whom you wish to direct a share of your life insurance. Your designation should identify the percentage that each primary beneficiary will receive. Secondary beneficiaries are persons who receive your life insurance only in the event that the primary beneficiaries predecease you or cannot be found or identified. If you designate more than one secondary beneficiary, you should identify the percentage that each person will receive.

If you divorced and never changed your beneficiary designations on your life insurance policy, your ex-spouse may get all of your life insurance if you die. This means that if you designated your spouse as your life insurance beneficiary during your marriage he or she will remain your beneficiary even if you divorce, unless you comply with your insurance company's procedures for designating a new beneficiary. There is no law in Illinois that automatically changes your life insurance beneficiary upon your divorce. This rule also applies to life insurance made available through your employment. Therefore, do not assume that a divorce settlement agreement or a court-ordered divorce distribution completely controls your life insurance policy. The only way to actually remove your ex-spouse as your life insurance beneficiary is to fully comply with the change of beneficiary requirements set forth in your policy.

It is wise to regularly check on the status and details of your life insurance policy. To make effective changes, be sure to comply with all of the procedures required by your insurer and the law.