‘Buy now and worry less later’ may be best life insurance policy

matt.yas@exhibitAnews.com

In the legal jungle of insurance policies, life insurance is its own, mysterious animal.

Most see a medical plan as a virtual requirement — oh wait, this is Massachusetts; it is a requirement — and Mother Nature’s recent displays of her fickle temperament from New Orleans to Myanmar are enough to make anyone seriously consider draping a security blanket of coverage over a lifetime of acquired stuff.

So why do so many still consider life insurance a luxury? Is it not the most essential kind of all? Certainly, nothing could be more important than protecting those you love in case of your own final tragedy.

While family is reason enough to consider life insurance, many single non-parents consider the prospect of buying life insurance akin to hiring a babysitter: Sure, it would be nice to plan ahead and have her on call, but … what would she do all night?

Springfield attorney Gina M. Barry is an expert in estate planning and elder law and sees more than one reason for the young, single and fabulously broke to consider a life insurance policy.

Barry points out that, because life insurance is “probate-free,” it can be of particular interest to those carrying outstanding debt. “Assets go to probate only when no living beneficiary is designated,” she explains.

With a life policy, a beneficiary is afforded the opportunity to settle the benefactor’s outstanding debts — or maybe not. That decision is up to the beneficiary and is not the responsibility of creditors making a claim against an estate in probate.

Also, life insurance offers the socially conscious the opportunity to “leave a legacy,” that is, leave an endowment to a cause or charity of one’s choosing, quite possibly in an amount greater than one could hope to give in a lifetime.

If a consumer decides to purchase a life policy, the first rule, according to trust and estate attorney Paul F. Donovan of Boston, is easily overlooked: Do not purchase a policy for oneself. Instead, insure one’s spouse, partner, relative or friend and have them do the same for you.

The reason? The inevitable taxes.

“If you own the policy, the proceeds become part of your gross estate for tax purposes,” Donovan says. “If there is cross-ownership, your proceeds are not includable.”

‘D&D policy’

A primary concern with any insurance policy is the certainty of collection. But, while exclusions on life policies can vary from company to company, they usually fall under the umbrella of common sense: an act of war, suicide or murder. (A lesser-known deal-breaker is voiding the policy if death occurs while committing a crime.)

A common source of confusion involves the accidental death and dismemberment policy, protection not synonymous with “sudden” death coverage. A fatal cardiac event, for example, may be tragically unforeseen, but is not considered “accidental” under the law.

“I’m blown away by how many people think they hold an all-inclusive policy, only to discover that it’s a D&D,” says Barry. “If the death was not an accident, the insurance company will not pay. And accidental deaths can be difficult to prove.”

Even the safest, most comprehensive term life plan will not build any equity for you; to that end, a new maneuver has emerged in the life insurance game during the past quarter-century: the buyout. Perhaps you have seen the television ads by companies offering to buy back a policy for cash. While this may seem like a comforting safety net — insurance on your insurance, Barry warns that the odds are one cannot count on a buyout as a viable option.

“These viatical settlements came out of the AIDS epidemic, when patients needed money to fund their care,” she says. “These companies would buy the insurance from the policyholder, assuming they’d get a return on their investment. In order for a company to buy your policy, they usually want to see that you’re terminally ill.”

He who hesitates …

The most practical reason to buy life insurance now, offers Barry, may be simply the inability to do so later. Any number of unforeseen afflictions could quickly make the suddenly disqualified wish that they had been more forward-thinking than frugal.

“By the time you get married, you might be uninsurable,” Barry says. “If you’re stricken with and recovering from cancer, for example, there’s a waiting period of several years before you’ll be insured.”

In contrast, by investing a nominal monthly fee, the policyholder can protect loved ones, even if he has not met them yet, by buying now and simply adding them as beneficiaries later.

“Once you obtain a life insurance policy, it can’t be taken away,” says Barry. {EXA}