Spring is a great time to refresh your insurance, financial and estate plan record keeping. Here are three areas that can help ensure your insurance and financial records are current and well structured to provide the peace of mind you need to help protect your interests and that of your heirs.
Periodic policy and beneficiary designation reviews
Life insurance is a financial product that doesn’t always get the attention it deserves. Some people purchase a policy and then forget about it, thinking they have tackled that task and can now cross it off their financial duty list. However, if you own insurance coverage, you should be certain to conduct thorough, periodic reviews to help ensure adequate insurance protection and to improve financial planning.
Many people may also forget to update their beneficiary designations on insurance policies and financial records as life events unfold, such as marriage, divorce, the birth of a child or even death. Before they know it, years pass and the designations are outdated. Consider taking some time to review and make any necessary updates to your beneficiary designations.
✔ Conduct a thorough policy review to update mailing and billing addresses, contact information, premium frequency, stored payment cards or bank accounts, beneficiary designations, collateral assignments and coverage amount.
✔ If there isn’t time to conduct a thorough policy review, an interim solution is to file a current beneficiary designation with your insurer. Filing a new designation serves the dual purpose of revoking any previous revocable designations and establishing a present designation in the named individual or entity.
✔ Either way, obtain the appropriate forms from an agent or the insurer and follow all instructions to ensure your new beneficiary designation is properly recorded.
✔ Don’t stop with your insurance portfolio. Take stock of all your financial accounts, including personal banking, college savings plans, 401(k), IRAs, and other investment accounts to ensure beneficiary designations are current.
Transfer of ownership
Did you know that transferring all incidents of ownership in a life insurance policy does not change or alter the underlying beneficiary designation? The transfer of ownership includes the right to change a revocable beneficiary, but unless the new owner exercises that right, the beneficiary designation remains as it was when ownership was transferred.
✔ If you’re contemplating a change of ownership that necessitates a change of beneficiary, one approach is to first designate the new beneficiary at least one day prior to the change in ownership. Keep in mind that once ownership is effectively transferred, you will no longer have the authority to make policy changes including beneficiary designations.
✔ If ownership has already been transferred but you’re unsure whether you accomplished the necessary beneficiary change, suggest the new owner exercise his or her authority under the policy to verify and, if necessary, update the beneficiary designation.
What becomes of an old collateral assignment attached to a life insurance policy once the underlying loan is paid in full? Often, purchasers don’t give it a second thought after closing, let alone five or 10 years later at the end of the loan.
Here’s what you need to know about the effect of a collateral assignment on life insurance and why it’s so important to ensure the lender releases its security interest as soon as reasonably possible after payoff:
• The beneficiary’s interest under a life insurance policy is subordinate to that of a collateral assignee (a lender or other entity). This means the lender is typically in a superior position in the event of a claim.
• When an outdated collateral assignment remains attached to your life insurance policy at the time of your death, payment of benefits could be delayed while your beneficiary works with the lender to obtain a release. Some insurers may elect to make payment jointly to the assignee and beneficiary leaving it up to the payees to negotiate settlement and provide appropriate releases to each other.
• The original assignee may have sold the loan after closing or merged with or been acquired by another institution, which can complicate the situation.
✔ Consider ensuring timely release of a collateral assignment with minimal effort at or near loan payoff when there have been regular and sustained contacts between the insured and the assignee.
✔ If several years have elapsed since payoff , one rule of thumb is to check in with the agent or insurer to confirm whether an assignment still exists and, if necessary, initiate the release process.
✔ Taking one of these simple steps can help to ensure a hassle free claim experience for your beneficiary.
Consider taking a few minutes to ensure your insurance portfolio and record keeping is up to date. Spring only comes once a year!
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Ms. Goodreau is Director of Specialty Insurance Markets for Great-West Financial®, which underwrites ADA Members Insurance Plans. Exclusively available to ADA members, these insurance plans include life, disability income protection, office overhead expense and supplemental medical. For information about the insurance plans, visit insurance.ada.org.
Great-West Financial®, underwriter for ADA Members Insurance Plans, is committed to helping you make informed financial decisions. Great-West Financial does not provide legal, tax or investment advice. Please consult your own financial professional.