"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things."

~ Niccolo Machiavelli, historian and writer

Wednesday, December 5, 2007

Do You Really Know Your Life Insurance?

Maybe you do. Hopefully you do.
Hopefully you've given it a little more thought than I had.

I purchased my first life insurance policy shortly after my marriage. Prior to that, I hadn't felt that I had any reason to really think about it. But knowing that I would want to start a family in the not too distant future made it seem like a good idea.

And I purchased term life insurance. After all the cost of whole life was significantly more. And with both my husband and I each having two different policies and being happy with the overall amount of insurance we had, I put the matter out of my mind. Crossed it off my mental list. After all, there are always enough other things to think about, right?

Unfortunately, I had failed to seriously consider the implications of term insurance. The implication being that when the term was up (20 years in my case), so was the insurance policy. The death benefit was gone, all was lost. Sure, there would be happy to sell me another term policy at that point. With the new premium being based on my age at that time.

Yeah, I know. Some of you out there must be saying "Duh. How could she miss that?". And honestly, I don't know. But I did. And I would have no doubt remained in my happy state of oblivion until the term expired (three years from now as it turns out) and I was slapped in the face by reality.

The only reason it came to my attention now was because of Mr. Pope's comments on life insurance at the Disability and Estate Planning Seminar. Mr. Pope was recommending the purchase of what's often called T100 insurance - term to 100 insurance. Apparently, not all companies continue to offer this type of insurance but it can still be found. In its simplest form, its term insurance that continues until the insured reaches the age of 100 years.

Mr. Pope also spoke about something called "T100 joint and last" in which the spouses jointly purchase one policy which covers both their lives. In this example, the insurance policy would not pay any death benefit when the first spouse died. However, the surviving spouse would no longer have to pay any more premiums after that death and the policy would pay out when the second spouse died. And the spouses would have set it up so that the proceeds would go into a Henson Trust when the second death occurred.

In this case, the policy is being used not as an insurance policy, but as a monthly savings plan. If you place your money in a savings account, you won't make anything. Unlike putting your money with an insurance company.

And as Mr. Pope was talking, it hit me. Other than our house, the only asset we will really have to leave to our children is our life insurance. Which I was aware of. Which is what I intended would go to them in trust.

Right, that would be the policy that would no longer exist once the term was up.

Which meant that I needed to ensure that at least some of our life insurance was converted to whole life or a T100 policy. In our case, since our family will need some of that life insurance to make up for the loss of income should one of us die, a 'T100 joint and last' policy would not be a practical alternative. Unfortunately, I am now looking at making that conversion to whole life with premiums based on my current age. As opposed to my age 20 years ago.

That repetitive noise you hear? That's me still kicking myself.

So as you consider what you will have to leave not just your disabled child but also any siblings they may have, it might not be such a bad idea to pull out those life insurance policies. And look at them again. Because even if you have term insurance and the term won't expire until your children are adults, chances are you will want to make sure that you still leave something to your disabled child, no matter how old they might be upon your death.

In which case, if you're counting on your life insurance proceeds to form part, or all, of a Henson Trust, you will want to make sure that you will actually have a valid policy that will pay out no matter what your age when you die. And the sooner you ensure you have that set up properly, the less you will have to kick yourself about.

Trust me, I know.

**Once again, with grateful acknowledgment to Mr. Ken Pope and the Nova Scotia Downs Syndrome Society for 'bringing him to town'.

1 comment:

Balancing Act said...

Very Interesting Michelle. Better to find this stuff out now rather than later. Working in the industry (insurance) I am probably a little more aware of some of this stuff than the average person. For that I am grateful. Figuring out what will happen to the people that we leave behind is never a pleasant conversation.

BTW - I don't know if you have read my blog lately but you may be interested in the last thing on my list of things I am grateful for. Name on the blog is Terrible, Horrible no good kind of day.