Articles Tagged with: life insurance information
Life insurance policy

Stranger Originated Life Insurance

Stranger originated life insurance is frequently pitched as a way for older individuals to get a tax-free payout. The arrangement may be called an “estate maximization plan,” a “no cost to the insured plan,” a “zero premium life insurance policy,” or a “new issue life settlement.” Whatever it is called, it requires committing insurance fraud.

If someone approaches you with a life insurance scheme that sounds like this, beware – STOLIs are for the most part illegal. And if you believed you should have been a beneficiary to a life insurance policy and some stranger was named instead, give the life insurance lawyers at Boonswang Law a call. We have helped clients nationwide get the payout they are due.

What Stranger Originated Life Insurance Is

Also called Stranger Owned Life Insurance or STOLI for short, Stranger Originated Life Insurance is a situation in which someone who does not have an insurable interest in the insured pays premiums on a life insurance policy in the name of the insured and is the policy’s beneficiary.

The Purpose of Stranger-Owned Life Insurance

The purpose of STOLIs is to get a tax-free payout. A third party may approach an insurable person and encourage them to apply for more life insurance coverage than their age, earning power, and assets would normally justify. That third party would then pay the premiums. The insured puts the policy into a trust once the contestability period expires and sells it to that third party for a “free” cash payment. That third party then gets a tax-free payout when the insured dies.

This sounds like win-win – the insured and the third party both get a tax-free payout. The losers are the IRS and the life insurance companies. While you may not have much sympathy for these entities, STOLIs contribute to higher taxes and higher premiums for the rest of us.

Is Stranger Originated Life Insurance Legal?

STOLIs are generally illegal but where they are not, they are at the very least unethical. Most are merely schemes to gain tax free money through fraudulent financial reporting.  

A third party can create an insurable interest in someone by loaning them money. If the insured died they would leave the loan unpaid, creating an insurable interest.

When Someone Can Take Out a Life Insurance Policy on Someone Else

Policy Owners Must Have an Insurable Interest in the Insured

Legally, someone must have an “insurable interest” in the insured in order to purchase a life insurance policy in their name and name themselves as beneficiary. 

The purchaser of a life insurance policy has an “insurable interest” in the insured when their finances would be adversely affected by the death of the insured. Some states set forth who has an insurable interest in the insured, such as a loving relationship, i.e., spouse, children, parents, or siblings.

The insurable interest requirement ensures that the policy owner/beneficiary has more than a financial interest in the insured. Presumably, someone in a loving relationship with the insured would hope for their long life as well as a death benefit when they die, not just their death so that they can get their payout.

An Employer May Have an Insurable Interest in an Employee

A corporation with an insurable interest in the insured may also own a life insurance policy in the insured’s name, called a corporate-owned life insurance (COLI) policy. COLIs generally require the consent of the insured.

For example, a company may insure a highly-experienced and valued employee so that they have the funds to hire a comparable replacement should that employee die. The insurable interest is the company’s interest in keeping that employee alive and working for them. 

Talk With an Experienced Life Insurance Lawyer

If you thought you were the beneficiary to a loved one’s life insurance policy but a stranger was named instead, call us. You may not get the death benefit after all if the insured committed insurance fraud, but if a stranger took advantage of the insured you may still get paid. 

We take cases on contingency only to minimize out-of-pocket expenses to you. Call us to discuss your case, free of charge!

Can You Have Multiple Life Insurance Policies?

Can You Have Multiple Life Insurance Policies?

Yes, you may purchase multiple life insurance policies. Many people who purchase life insurance purchase multiple policies for different reasons. Learn from the life insurance lawyers at Boonswang Law about the types of life insurance policies available, the reasons for owning multiple life insurance policies, why the amount of life insurance you own can be limited, and what alternatives you have to owning multiple policies.

Owning Multiple Life Insurance Policies

When you own more than one life insurance policy, you must complete separate applications and medical questionnaires for each policy. Be sure that the information you provide is accurate and consistent across all policies. If it is not, you risk an allegation of life insurance misrepresentation and the chance your beneficiary or beneficiaries do not get their payout.

Be sure to organize your policies so that you know when premiums come due, and pay them in full and on time. If you miss a premium payment, you risk life insurance lapse and termination, and again, the life insurance company will deny your beneficiaries’ claims. Lapse is one of the most common reasons life insurance companies deny claims for death benefits.

Reasons to Have Multiple Policies

Common reasons to have more than one life insurance policy include:

Limits On Your Life Insurance Amount

The amount of coverage you can purchase will be limited by factors such as your age, health, occupation, and net worth. For example, someone who works at minimum wage and is 65 years old will not be able to purchase a $1,000,000 policy.

When you apply for an additional policy, the life insurance company takes into consideration the amount of coverage you already have when determining the amount of coverage they will offer you.

Differences in Life Insurance Policies

These are the various types of life insurance:

Term Life Insurance

This is the most common type of life insurance. Someone purchases a set amount of coverage for a term, say, 10 or 25 years, and if they die within the policy term their beneficiary or beneficiaries receive the face amount of the policy as a death benefit.

Whole Life Insurance

Whole life insurance can work like term life insurance as far as payouts to beneficiaries goes, but unlike term life, whole life accrues cash value as the insured pays premiums. The insured can borrow against that cash value subject to some restrictions.

Group Life Insurance Through an Employer

Employers often offer life insurance coverage to their employees at no or little cost, as a benefit to employment. The amount of coverage will likely be a multiple of the employee’s annual salary. If the employee leaves their job, they have the option of converting their coverage to an individual policy.

Funeral Expense Insurance

These types of policies typically are inexpensive and have a face value of $10,000 or $15,000. Funeral Expense policies pay end-of-life and funeral expenses.

Multiple Life Insurance Policies Alternatives

Instead of purchasing more than one life insurance policy, one might consider naming a  beneficiary to their savings account, checking account, investment account, retirement account, or pension. For example, someone who has purchased the maximum amount of life insurance coverage they are eligible for should consider these alternatives when planning to provide for loved ones should they die.

How An Experienced Life Insurance Lawyer Helps

If you own multiple life insurance policies, you must organize this documentation so that when you die your beneficiaries will be able to access and understand the coverage you have.

If you struggle to understand multiple life insurance policy coverage, call us. Our experienced life insurance lawyers have helped beneficiaries across the country understand their rights and get the benefits they deserve. Call 1-855-347-1279 today to discuss your case – free of charge!

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Has Your Life Insurance Policy Been Rescinded?

Has Your Life Insurance Policy Been Rescinded? 

Find out from the experienced life insurance lawyers at Boonswang Law how a life insurance policy gets rescinded, and what to do if you are a beneficiary of a rescinded life insurance policy.

If your claim for death benefits was denied because the life insurance company rescinded the policy, do not take no for an answer – call us. We will fight to get you the death benefits you deserve – at no up-front cost to you!

Rescinded Policy – a Common Reason for Claim Denial

A rescission notice is somewhat different than an outright claim denial, lapse, or termination. A life insurance company alleges it has cause to rescind coverage for material misrepresentation when the insured makes a false statement, error, or omission on their initial application for life insurance and medical questionnaire, that the insurance company relied upon when writing and issuing the policy.

The insurance adjusters use the information the insured submits on their application and medical questionnaire to determine the risk that the insured will die within the policy term. If the insured is at high risk of dying within the policy term, they pay higher premiums than those at lower risk. 

The life insurance company will allege that it relied upon the false statement, error, or omission in issuing life insurance coverage, and rescind the policy. A rescission notice essentially goes back in time to the day life insurance coverage started and the policy is null and void. 

In the rescission notice, the life insurance company must offer to return all premiums paid.

What Should You Do if You Get a Rescission Notice?

Your rescission notice should clearly state the reason or reasons they are rescinding your policy. Know that a life insurance policy cannot be rescinded if:

  • The alleged false statement, error, or omission is immaterial, or in other words, trivial, such as a minor mistake in an applicant’s contact information.
  • The insured did not know about a medical condition at the time the application and medical questionnaire were completed.
  • The insured did not have the intent to deceive.
  • The question the life insurance company alleges was falsely answered was vague or a compound question

If you get a rescission notice and you believe the reason the life insurance company rescinded your policy is incorrect or does not apply, contact your life insurance company immediately. A simple mistake on your part or their part can usually be rectified without further problem. However, if the life insurance company insists on rescinding your policy, you can contact a life insurance attorney for help. If you want the recission to stand, you should insist on a refund of all premiums you paid.

What Should You Do if You Are a Beneficiary of a Rescinded Life Insurance Policy?

If the insured dies within the first two years of coverage, called the Contestability Period, the life insurance company will investigate all of the facts the insured provided in their application and medical questionnaire. If they find any false statements, errors, or omissions, however trivial, they will rescind the policy and deny beneficiaries’ claims for death benefits.

Most errors and omissions are innocent. The life insurance company must show that the error or omission was done with the intent to deceive the underwriter and pay lower premiums. We have been able to help many clients across the nation get death benefits paid on rescinded life insurance policies because there was no intent to deceive on the part of the insured.

A beneficiary’s case is even stronger when the alleged misrepresentation had nothing to do with the insured’s cause of death, i.e., is immaterial. But even if it does, we have been able to settle with life insurance companies and get our clients paid the death benefit minus what the insured would have paid in premiums had the alleged misrepresentation not occurred.

Rescinded Policy? Call the Life Insurance Lawyers at Boonswang Law for Help

More often than not, policies are unfairly rescinded for any mistake or omission the insured made, even if the insurance agent who completed the application made the mistake, not the insured. 

If your claim was denied because the life insurance company rescinded the policy, call us. We have helped many life insurance beneficiaries get a payout on a rescinded life insurance policy, and we can help you too. Call us at 1-855-347-1279 for your free, no-obligation consultation.

Is a Life Insurance Policy a Marital Asset?

Is a Life Insurance Policy a Marital Asset?

A life insurance policy may count as a marital asset, depending on what law or laws control the policy. Whether or not it is a marital asset, an insurance policy will be subject to both federal and state insurance law as well as community property law.

Life insurance beneficiary rules for spouses and ex-spouses can be complex and confusing. If you are or think you should be named as a beneficiary on a life insurance policy owned by your spouse or ex spouse, call our experienced life insurance lawyers at 1-855-240-9160 for help getting your claim for death benefits paid. We have helped beneficiaries nationwide fight to get their payout, and we can help you too. Your initial consultation is free of charge, and we don’t get paid unless and until you do.

Whole Life Insurance is Almost Always Considered a Marital Asset

If your spouse paid premiums on a whole life insurance policy during your marriage, the value of that policy qualifies as considered a marital asset when you divorce and it is subject to the property settlement agreement.

Whole life insurance policies, unlike term life policies, accrue value as the insured pays premiums. It may then get cashed out and the proceeds divided according to a property settlement agreement. Alternatively, it can be left intact and the portion the non-insured spouse is entitled to get paid in some other way from the parties’ other marital assets.

How the court splits the proceeds from a whole life insurance policy will depend upon whether the marital assets are subject to equal or equitable distribution. This varies state-to-state.

When Term Life Insurance Death Benefits Are a Marital Asset 

Term life insurance policies do not accrue present value as premiums get paid. Rather, term life policies pay out only if and when the insured dies within the policy’s term. At that point, the death benefit pays to the named beneficiary.

State law provides the definition of “marital asset”, and it varies state-to-state. In community property states, life insurance qualifies as a marital asset if the premiums were paid with income earned during the course of the marriage. The nine community property states are:

If you live in one of these states and your spouse or ex-spouse died, and you were not the named beneficiary, call us – you may have a claim to some or all of the death benefits. Beneficiary contests are not easy to win. You will need an experienced life insurance attorney by your side to fight for what you are due.

How Revocation-Upon-Divorce Statutes Affect Life Insurance Beneficiaries

About half of the states in our nation have so-called “revocation upon divorce” statutes that automatically remove an ex-spouse as a life insurance beneficiary when the divorce is final. If a divorced policyholder wishes their ex-spouse to remain as beneficiary or the court requires them to name their ex-spouse as beneficiary, they must follow their state law procedure for renaming them as beneficiary.

How ERISA Affects an Ex-Spouse Beneficiary

Federal ERISA law controls employer-provided group life insurance policies and overrides state law when they conflict. This means that in revocation-upon-divorce states, the named beneficiary will receive the death benefit even if they are the insured’s ex-spouse. 

How Life Insurance Secures Child Support or Spousal Support Payments

A revocation-upon-divorce statute affects an ex-spouse beneficiary in a number of scenarios. First, if the ex-spouse or the children of the marriage are support obligees and the insured was a support obligor, the insured may be under court order to maintain life insurance for the benefit of the support obligees should the insured die. In that case, the support obligees should contest the beneficiary designation.

If the insured was required to name you as their life insurance beneficiary but failed to do so, call us for help. We can help you get the payout you deserve.

Spouses and Ex-spouses – Call an Experienced Life Insurance Lawyer for Help if You Should Be a Life Insurance Beneficiary

What happens when the insured moves to a different state after getting divorced? What happens when the insured converted their employer-provided group life insurance policy to an individual policy, or if that conversion was ineffective through no fault of the insured? What happens when the insured changes an irrevocable beneficiary designation?

You may still get the death benefits. Our experienced life insurance lawyers have helped spouses and ex-spouses across the nation navigate the complex interplay of federal and state insurance and family law and get the death benefits they are due. Call us today at 1-855-347-1279 to discuss your case, free of charge.

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Can Felons and Ex-Convicts Get Life Insurance?

Do insurance companies cover felons and convicts?

Can you get life insurance if you are a felon? Can you get life insurance with a criminal record?

When deciding whether to provide a person with life insurance, life insurance companies weigh the risks associated with that person after they’ve done a background check.  The riskier the person, the less likely the insurance company will provide a policy.

The risks associated with insuring someone include, for example, that person’s medical history.  If someone has been diagnosed with aggressive skin cancer, a life insurance company may choose not to provide this person with coverage because, should the person die in a short period of time, the insurance company will have to pay out the policy sooner than they would like and issuing the policy would be a losing financial proposition.

Insurance companies also examine other risks, such as a person’s job (is the applicant a race-car driver or a telemarketer?), their recreational activities (do they often deep-sea dive or sky-dive?), and even the person’s criminal record.

Can convicted felons get life insurance? Well, if you have a criminal record, insurance companies will likely view you as leading a “high-risk lifestyle” because they believe you are someone prone to making bad choices.

Can felons get life insurance?

Sometimes. Having a criminal record does not automatically bar you from getting life insurance.  (There are some exceptions to this statement explained below in #3.)  When deciding whether to insure a person with a criminal history, insurance companies often consider the following:

  • Whether you were convicted of a felony. This post discusses a person’s ability to obtain life insurance after they have been convicted of a felony.  If you have only been charged with a felony, or you have been convicted of a misdemeanor, this post may not answer your questions.  Contact the Boonswang Law Firm and we will be happy to discuss your specific situation.
  • Whether you were incarcerated. Incarceration is a traumatic experience in and of itself, so it inherently takes a toll on a person’s mental and emotional well-being.  Aside from the psychological trauma that incarceration can have on a person, it can have physical impacts on people as well.  While in prison, people are at a higher risk of contracting diseases that can then lead to untimely deaths down the road.  Additionally, drug use is sometimes associated with incarceration and may also lead to premature death.  Whether you were incarcerated for your crimes, how long you were incarcerated, and how long ago you served your time are all very important information to insurance companies.
  • The nature of your crime. The nature and charge of your conviction is important for two (2) reasons.  First, insurance companies use the nature of your crime to determine how risky your behavior has been in the past.  If you have been convicted of murder, rape, drug trafficking, kidnapping, child molestation, and/or conspiracy to commit any of those crimes, you will likely be barred from obtaining life insurance.  Second, life insurance companies want to know the nature of your criminal conviction because some convictions have higher recidivism rates than others.  Essentially, the company will use this information to determine how likely it is that you will return to prison for another felony conviction.
  • Whether there was a probation period. Under normal circumstances, you will be unable to get life insurance while on probation.  Life insurance companies normally require a period of five (5) years to pass from the date that the probation ended until the date that they will agree to provide a life insurance policy to an applicant.  The more time that has elapsed since your criminal activity, the better it is for your life insurance application.
  • Whether you have changed your life around. One good tip is to write the life insurance company a cover letter in which you explain exactly what happened and specifically how you have improved your life since your felony conviction.  Taking responsibility for your decisions and showing that you now have some form of steady employment, some education, and a connection to service and your community will all increase your chances of getting approved for life insurance.  When it is time to submit a claim, the Boonswang Law Firm can help ensure that your beneficiary receives payment of the death benefit.

Philadelphia’s Life Insurance Lawyers, getting life insurance for convicted felons.

At the Boonswang Law Firm, we are here to help you with all your life insurance questions.  If your loved one had a criminal conviction and you have questions regarding life insurance for felons or accidental death and dismemberment policies for felons, contact the Boonswang Law Firm and we are happy to discuss any of your concerns.

 

 

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Is It OK to Have Multiple Life Insurance Policies?

Can you have too many insurance policies?

There is no law against having multiple insurance policies, life insurance or otherwise. The downsides to having multiple policies have to do with additional costs and hassle of keeping up with multiple policy payments.

Why should you have more than one policy?

  • To account for your loss of income when you pass away and to provide financial protection to your family
  • To cover debt or loans, such as a mortgage or car note’
  • To provide financial security to a business partner and enable your business to continue uninterrupted after you die
  • To cover potential inheritance tax liability against your estate.

Spread the Risk

Additionally, since different policies have different premiums and some insurance companies will deny claims for certain reasons that others would not, having multiple claims would spread the risk of any one claim being denied.

Economically, it could make sense to buy a cheaper policy that has many exclusions, a more expensive but expansive policy, and have the policies differ in years of coverage.

This way, the cost is more distributed and policies are in effect for different situations.

Disclose Secondary Policies

There are, however, steps that need to be taken to make sure that multiple policies pay out in the ways that you intend. The companies you purchase the policies from must each know that you have additional other policies.

Disclosure of your other policies might be on the applications themselves or, if there is not a question that addresses this, you should take steps to find out how the company handles the existence of other policies.

The existence of other policies affects the value of the policy, since there is a limit on value based on age and income, or what other sources of income could be funding a family’s financial obligations after death.

If the other policies are not disclosed, claims could be denied based on material misrepresentation or other reasons.

How to apply for multiple policies?

There are ways to make applying for multiple policies easier.

There are agencies you can hire which will represent insurance companies. This way you can just use one medical exam and packet of records, and avoid spending a ton of time doing repetitive submissions.

However, it is still important to do independent research on each of the policies to ensure that all the information that the agency provides to you is accurate, and that you have taken advantage of all the additional riders that may come with certain policies.

What happens to insurance policies after divorce?

If you are married and intend to plan for situations in which a separation might occur, be sure to consider how the multiple policies and benefits will be divided. In the case of Hall v. Hall, the wife of an insured person who held multiple policies had a divorce decree which split the cash value of the life insurance policies. One of the issues in this case had to do with whether the policies only included the ex-husband and wife’s policies, or the policies of the whole family.

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Life Insurance Retained Asset Accounts Explained

Life Insurance Retained Asset Accounts Explained

Retained Asset Accounts, also known as RAAs, are tools created by life insurance companies as an alternative to paying out a lump sum.  You can think of an RAA as a pseudo bank account: the proceeds that would have normally been paid out are deposited in the insurance company’s corporate account, and you can access their funds via writing a check.

The Dangers of RAAs

Many policyholders have experienced difficulties with RAAs.  When they attempted to draft money from their account, they suffered significant delays.  

An RAA is not like a traditional bank account because the account actually belongs to the insurance company.  They are earning interest from your insurance proceeds that are deposited in their corporate account.

What Your Insurance Company Gains From RAAs

Some insurance companies make the RAA option seem more attractive by offering the policy holder a percentage of the interest that they earn.  While this is indeed an attractive benefit, there is significant concern surrounding which vendors do not accept RAA checks, as well as the general safety of the money that is deposited.  

Traditional banks are insured by the Federal Deposit Insurance Corporation, or FDIC. Your bank account is insured up to $250,000.

RAAs, on the other hand, are not insured by the FDIC. If the insurance company issuing the policy is not in good financial health and do not have the funds to distribute later on, there is no entity to pay you the money you are owed.

Recent Developments on RAAs

In a recent case, Huffman, individually and on behalf of a class, v. The Prudential Insurance Company of America, 2017 WL 6055225 (E.D. Pa. 2017), the Eastern District of Pennsylvania decided that The Prudential Insurance Company of America violated ERISA, a body of federal law, by depositing life insurance proceeds into RAAs.  This means that Prudential, along with other insurance companies that operate in Pennsylvania, will no longer be able to use them as the default method of paying out benefits.

States Differ In Treatment of RAAs

Because the insurance industry is regulated on a state level, the treatment of RAAs after the Huffman case will still have variations.

For example, while Florida allows the use of RAAs though Fla. Stat. Ann. § 627.473[1], Indiana has no explicit statutes or regulations that allows or disallows for RAAs.  Florida’s statute reads as follows:

“Any life insurer shall have the power to hold under agreement the proceeds of any policy issued by it, upon such terms and restrictions as to revocation by the policyholder and control by the beneficiaries and with such exemptions from the claims of creditors of beneficiaries other than the policyholder as set forth in the policy or as agreed to in writing by the insurer and the policyholder. Upon maturity of a policy, in the event the policyholder has made no such agreement, the insurer shall have the power to hold the proceeds of the policy under an agreement with the beneficiaries. The insurer shall not be required to segregate the funds so held but may hold them as part of its general assets.”

It is likely that Huffman will influence more states to address the validity and legality of various aspects of RAAs.

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Financial ramifications of a loved one’s death

Coping with the death of a loved one can be an emotionally taxing experience. While finances may be the last thing on your mind, understanding the basics of estates, trusts, and life insurance can help to navigate these complex processes when the time comes.

Estates

A deceased individual’s estate is the sum total of his or her assets, i.e. all the property that he or she owned at death. This can take the form of real estate, bank accounts, automobiles, stocks, insurance policies, or virtually anything else of financial value.

Estates are distributed through a process called probate. Probate frequently involves the use of the deceased’s will. The executor, often a trusted friend or family member of the deceased, oversees the distribution process according to the terms of the will. The executor acts as a sort of middleman in between the deceased person and the  beneficiaries, often spouses, children, or relatives of the deceased, who are each entitled to a portion of the estate.

In the case of high-value estates, probate may become a heavily litigated process, with multiple parties claiming to be entitled to the same assets. It’s also important to note that the probate court process varies on a state-by-state basis. For instance, many states allow people with few or no assets to avoid probate (see Cal Prob Code § 13100).

Trusts

A trust is an independent financial entity created when an individual (the “grantor”) puts money or assets aside to be managed, invested, and distributed by a trustee. Trusts may assign an individual or an asset management company (AMC) as trustee, and they may afford varying levels of discretion to the trustee. Some trusts specify that the trustee can distribute funds “as needed,” while others specify restricted uses or amounts at specific time intervals (see the “Spendthrift trusts” section of our previous blog post).

Because trusts are not technically “owned” by anyone, they are not counted as part of the grantor’s estate. In high-value estates (only those with values over $11.18 million as of recent tax changes), placing assets into a trust can help to minimize federal estate taxes (see our previous blog post). Trusts are also typically distributed at the discretion of the trustee, avoiding the probate process altogether.

Life insurance

In most cases, life insurance is not treated as part of the deceased’s estate or as a form of trust, but as a separate fund altogether (see our previous blog posts on probate and trusts for exceptions). With life insurance policies, the beneficiary must file a claim with the insurance company before being paid the death benefit. This typically involves 3 steps (see our previous blog post):

  • Step 1: Gather all relevant information about the policy by looking through the deceased’s records, bank statements, taxes, etc.
  • Step 2: Contact the insurance company and let them know of the insured’s death
  • Step 3: Fill out claim forms and send a certified copy of the insured’s death certificate

After completing these steps, you should be paid within 2 months. However, life insurance companies will frequently delay or deny legitimate claims in order to maximize their own profits. If you believe your claim has been unlawfully delayed or denied, don’t hesitate to contact an experienced life insurance lawyer.

Life insurance lawyers

What is a life insurance trust?

A trust is a financial entity created when an individual puts money or assets aside to be managed, invested, and distributed by a trustee. Trusts may assign an individual or an asset management company (AMC) as trustee, to which the terms of the trust may afford varying levels of discretion. Some trusts specify that the trustee can distribute funds “as needed,” while others specify restricted uses or amounts at specific time intervals (see the “Spendthrift trusts” section of our previous blog post).

Life insurance policies are typically “owned” by the policyholder, i.e. the person who applies for and pays premiums on the policy. Life insurance trusts are created when ownership of a policy is transferred from the policyholder to a trustee. Upon the insured’s death, the death benefit will be paid to the trustee and distributed to the beneficiary or beneficiaries by the trustee.

Why use a life insurance trust?

Although life insurance trusts do not typically offer advantages over personally-owned policies to the average consumer, there are a few situations in which creating a life insurance trust may be prudent.

Estate taxes

Although recent tax changes more than doubled the exemption threshold for federal estate taxes, estates worth over $11.18 million are still subject to a 40% tax rate. If the death benefit is transferred to the insured’s estate following his or her death (see our previous blog post), it may be subject to estate taxes. However, if the policy was owned by a trustee as part of a trust, it will escape taxation on the insured’s estate since it is not technically “owned” by the insured.

Control over distribution of death benefit

In a typical life insurance policy, the death benefit is transferred from the insurance company directly to the beneficiary or beneficiaries upon the insured’s death. However, life insurance trusts may afford full discretion over distribution of the death benefit to a family member or close friend as trustee, allowing them to control who gets what and when. This can be useful when children or financially irresponsible adults, who could not be trusted with the full death benefit, are named as beneficiaries to the trust. Additionally, since the trustee (rather than the beneficiary) controls the death benefit, it is protected from the beneficiary’s creditors.

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Life insurance policies: converting term life to whole life

Term life insurance policies are temporary and provide coverage for a specified period of time. Term life policies are simple: the policyholder pays regular premiums in exchange for a death benefit in the event of the insured’s death. There is no accumulated cash value, and premiums stay constant throughout the duration of the term.

If the expired term life policy included a conversion provision or rider, the policyholder can choose to convert the temporary term life policy into a whole life policy. In contrast to term life policies, which provide coverage up until the end of the term, whole life policies provide coverage for the entirety of the insured’s life or until a designated age such as 65, 75, or 100 years old. Whole life policies also accrue permanent cash value in addition to the death benefit. Since they are more valuable than term life policies, whole life policies often require substantially higher premiums.

Converting a term life policy to a whole life policy is often a simple process, and it can be beneficial on multiple levels. Conversion riders rarely require that the insured undergo a new medical exam or complete a new health questionnaire, which can be valuable if the insured developed a serious medical condition during the time that he or she was covered by the term life policy. Additionally, whole life policies specify future premium rates that are not subject to change. Even if the insured develops a terminal illness, he or she will still only need to pay the premiums listed on the policy.

However, conversion is not always the best option. Factors such as age, financial security, and health are all relevant and should be considered before converting to a whole life policy. For instance, if you are in good health and interested in taking out whole life insurance, it might be best to apply for a new policy altogether. Elderly individuals who only need to secure coverage for the next five or ten years may find that term life better meets their needs. Still, if you are happy with your current term life insurance and wish to make it permanent, conversion can be a worthwhile option.

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