What Are Some Insights About Managing Life Insurance Benefits?
Navigating the complexities of life insurance benefits can be daunting, so we sought insights from six industry professionals, including Licensed Insurance Agents and CEOs. They share wisdom ranging from specifying beneficiary payout options to leveraging cash value in permanent policies. These expert tips aim to streamline your management of life insurance benefits.
- Specify Beneficiary Payout Options
- Update Beneficiaries Regularly
- Integrate Life Insurance in Estate Plans
- Educate Beneficiaries on Policy Details
- Review Policy After Major Life Events
- Leverage Cash Value in Permanent Policies
Specify Beneficiary Payout Options
One insight that people may not know about managing life insurance benefits is that you have options for specifying how your beneficiary will receive a payout. A lump sum is not the only option.
While obviously, your beneficiary should be someone who is trustworthy and can handle the responsibilities that come with receiving death benefits, sometimes a lump sum can be too tempting for a beneficiary not to spend all at once, especially if they’re unaccustomed to handling large amounts of money.
Other options include installment payments—annually, quarterly, or monthly—which could provide a steady income stream for dependents, such as your children or a spouse. You could also opt for an annuity, which would provide regular payments for the rest of the beneficiary’s life.
Selecting the type of death benefit payout would also depend on what you want it to be spent on, such as paying off a mortgage or other debts, or having a regular income to maintain your dependents’ standard of living.
Michelle Robbins
Licensed Insurance Agent, USInsuranceAgents.com
Update Beneficiaries Regularly
Regularly reviewing and adjusting beneficiaries is crucial for maintaining effective life insurance coverage. I’ve seen countless cases where outdated beneficiary designations led to unintended consequences, such as ex-spouses receiving payouts instead of current family members. We encourage our clients to reassess their beneficiaries annually or after major life events to ensure their coverage aligns with their current wishes and family situation.
Gregory Rozdeba
CEO, Dundas Life
Integrate Life Insurance in Estate Plans
Life insurance is a crucial component of a comprehensive estate plan, often overlooked by many. We’ve seen how proper integration of life insurance can provide immediate liquidity for estate taxes and other expenses, preventing the need to sell valuable assets. It’s essential to regularly review and update your life insurance policies to ensure they align with your current financial situation and estate planning goals—something we help our clients do every step of the way.
Thomas Petrelli
Founder, Estates Done Right
Educate Beneficiaries on Policy Details
As an insurance executive, I’ve seen many clients struggle to effectively manage life insurance claims and payouts. One key insight is to carefully review your policy details and ensure your beneficiaries are properly designated and up to date. I once had a client nearly lose out on a $500,000 life insurance benefit because they had failed to update their beneficiary after a divorce and remarriage. We were able to work with the insurance company to resolve the issue, but it was an overly stressful process that could have been easily avoided.
Another recommendation is to discuss your coverage and policy details with your beneficiaries while you’re still able. Explain things clearly so they fully understand the benefits and process in the event of your passing. I helped one young couple review their parents’ whole life and universal life policies, and they were shocked to learn the policies had substantial cash values they were not aware of. Having these difficult but important conversations can help avoid confusion, disputes, and missed financial opportunities down the road.
Finally, don’t assume you only need life insurance if you have dependents. Life insurance can also be used to cover final expenses, pay off debts, leave a legacy or charitable gift, and provide financial security for your beneficiaries or business partners. Whether you’re single or have a family, life insurance is a valuable financial planning tool for nearly everyone. Working with an experienced agent or adviser to determine the right type and amount of coverage for your unique needs is key.
Michael J. Alvarez, CPRM, CPIA
Managing Partner, Nu Sure Insurance Group
Review Policy After Major Life Events
One key insight about managing life insurance benefits is to regularly review and update your policy as your life circumstances change. Major events such as marriage, the birth of a child, buying a home, or changes in your financial situation can impact your coverage needs. Ensuring that your beneficiaries and coverage amounts are up-to-date helps protect your loved ones and financial goals.
Additionally, consider diversifying your policy types. Combining a term life policy with a permanent one, such as whole life or an Indexed Universal Life (IUL), can provide both short-term protection and long-term wealth-building potential.
sebastien antoine
Marketing & Operations, The Policy Shop
Leverage Cash Value in Permanent Policies
Cash value is a very powerful and multifaceted benefit to permanent life insurance but is NOT available with term policies. This Cash Value can be used as part of a Life Insurance Retirement Plan (“LIRP”), as well as to enhance current investments and/or business opportunities at any point in one’s life. When designed and implemented correctly, there are also extreme tax benefits at multiple levels.
Being “dual-hatted” not only as an Insurance Agent/specialist but also as a CFP(r)/Investment Advisor, I actually use Cash Value Life Insurance much more as a wealth-building and tax mitigation tool, as opposed to the more traditional approach of using it as a pure downside risk mitigation tool.
As a personal example: even though I’m currently single with no dependents, I have $5M in permanent Face Amount coverage and have routinely been paying six figures in annual premiums—despite the fact I clearly have no need for a permanent Death Benefit.
Businesses can also use Company-Owned Life Insurance as a funding vehicle for Buy-Sell Agreements, Key Person protection, Executive Compensation, and/or company-sponsored retirement plans (among other uses). In addition, the permanent Death Benefit can serve as a powerful Estate Planning tool, particularly for tax-sensitive High and Ultra High Net Worth clients.
For these specially designed, Cash Value-optimized Life Insurance policies and associated strategies, it’s critically important that one work with a sophisticated and integrous specialist with deep expertise in both the product itself, as well as the overall strategy/planning and implementation.
Ryan Haley
Certified Financial Planner™, Velerity Wealth
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