Death and Taxes
Recently, the popular TV show 60 Minutes delved into the topic of certain insurance companies not paying death benefits from life insurance policies. Seeing as how I’ve been licensed to sell life insurance since 1984, I’ve assisted a lot of my clients with life insurance and their beneficiaries upon their deaths.
The gist of the 60 Minutes story was this: If you are the beneficiary of a life insurance policy, it is up to you to file the proper paperwork to collect your money since many of these mean ole’ insurance companies may not pay off.
It’s important to note that insurance companies are in the business of writing contracts that insure you get money when things are lost, stolen, broken, wrecked, or in the case of life insurance, when you croak! The purpose of purchasing life insurance is so when you die, your loved ones are going to receive a bunch of cold hard tax-free cash.
So, just like any insurance contract, the insurance companies are certainly obligated to fulfill the terms of a life insurance contract upon the insured’s death. In exchange for the insurance company to pay cold hard tax-free cash at death, the insured transfers a premium to the insurance company and lists on the contract who he/she wishes to get the cash when they die. And while the insurance company certainly has an obligation to bring a check to the funeral, it’s not their obligation to scour the daily obituary column of the newspaper to see when the funeral’s taking place, nor chase all around town looking for beneficiaries of the deceased. That is the obligation of the beneficiary.
So here’s the point: if you own a life insurance contract, it’s always best to name a beneficiary. And after you name them, tell them they will need to contact the insurance company when you die. The good news for them is that this is a very easy process to collect on life insurance since there’s no probate again, assuming they are named in the contract. This is why I NEVER suggest listing the estate as your beneficiary, because that can throw a wrinkle in the speed of which the insurance company processes the claim and can also allow a life insurance policy to go unclaimed at death.