You’ve purchased life insurance as part of your estate planning efforts. You deserve to be commended for taking this step, and certainly there is a temptation to file away your policy and forget it. However, there are a few key things you should do right away after buying life insurance to ensure that in the event of a tragedy, your loved ones will easily be able to receive the money you want them to have.
1. Discuss it
While life insurance is personal, it’s also something to discuss with your loved ones. Certainly use your discretion and judgement, as there may be individuals who you feel should not know. If you have an executor, he/she should be aware of your plans, and often the beneficiary is informed. Your loved ones can’t be protected if they don’t know the protection exists.
Typically, beneficiaries, who will receive a life insurance payout, are asked in advance as part of your planning process. If you haven’t previously discussed it, you should tell them now. By being open and clear about your plans, you can provide them with basic information so that they know how they are protected and where to locate documents in the event of your passing.
2. Safely store your documents
Keeping your life insurance and other end of life planning documents safe is critical. Make copies of the originals in case they are lost or damaged. Be sure to store the original and copies in two or more different place, so if something happens that destroys copies in one location you have a backup elsewhere.
Storing at home – At home there is always the risk of documents being destroyed by fire or other natural disaster. Keep documents in a fireproof/waterproof safe or chest. Just be sure your executor has the key or combination in case they need access. But be sure to find a way to store documents off site, too.
Storing in safe deposit box – This is a traditional way that people have chosen to store documents and valuables off site; however, even if your executor has a key and is authorized, a bank may secure the box after your death and require a court order to open it.
Digital storage – Keeping digital copies can be a wise option. Scan your policy and other documents and keep them on your computer. You may want to back up to an external thumb drive. Online storage resources like Dropbox , Google Drive and others provide offsite storage for important documents in case your computer fails or is damaged. Just be sure that there is a way for your executor or other trusted person to also know how to access documents.
3. Leave instructions…leave a ‘paper’ trail
Leave written instructions about what to do in the event of your death. Some refer to this as a “love letter” to your family and loved ones. Clearly outline with detail what steps need to be taken upon your death including:
- where important paperwork is stored as well as how to access it if passwords or keys are required.
- describe the documents and what to do with them including details they will need.
- provide contact information
If you need help preparing such a document, ask your insurance agent, accountant or legal advisor for assistance. Providing this guidance will help your executor/family to navigate more easily during an emotional time.
Other future planning issues to think about include having an up to date will, health care proxy, power of attorney and other legal documents. If you haven’t yet made such preparations and don't already have a provider you trust, please let us know. We can provide you with a list of options.
4. Don’t just file and forget it
While you may be set for planning for the moment, your life is always changing. If you change jobs, have a child, move to a new home, enter a different stage of life where kids are grown, etc., your needs can change requiring updates to your life insurance plan. Issues to keep in mind:
Beneficiary changes – There are a variety of life events that can result in a decision to change your life insurance beneficiary. Your insurance company needs to know your intentions so that the loved one(s) you want to protect receive insurance funds.
Moving – Update your insurance agent with your current contact information. This is important to ensure that premiums are paid on a timely basis so that your policy doesn’t lapse or if any other issues/opportunities arise.
Policy review – Every 3 years or so, it’s smart to talk to your agent. Together you can discuss anything that may have changed and review your needs to ensure your current policy is still the best fit for you. There might be different policy options to consider or perhaps you need to change coverage amounts. If you become disabled or have financial challenges, contact your agent as your policy may have options that can assist you depending upon how it is structured.
Taking the extra time every now and then to consider your plan helps ensure your loved ones stay properly protected.