So, Life insurance! Probably the best-known and understood insurance covers available. After all, it’s pretty simple, isn’t it? You die – your family gets money!
And the answer is yes … and no.
The ‘yes’ part.
If you have Life insurance, on your death, the insured amount will be paid out by the insurance company.
The ‘no’ part.
The question here is – who will get the money? We’ll get to that in a bit because it can end up being complicated and if you don’t get it right it may not be the way you want it to be.
So, on my death will my insurance payout?
Yes, they will. Dead is dead!
We know that sounds a little bit harsh but the reality is that, to your insurer, the manner of your death (age, illness, foul play, or accident) is not important. Just that you have been declared to be dead.
The only exception to this is suicide. But, even then, most insurers will pay out on a suicide, provided you have had your policy in force for more than 13 months.
(And we understand that 13 months is a strange time period but, apparently, the statistics say that more suicides happen on the first anniversary of an incident that can be the trigger for suicide. By pushing it out by just one month, it can give people time to rethink and maybe change their minds. Whether this is true or not is a matter of debate, but insurance companies are driven by statistics and that is the decision they have made.)
So, what will happen with my insurance when I die?
With most Life covers, when death has been confirmed, there will be a payout of around $15,000 within 24 hours.
“Hey, I have more cover than that!” Yes, you probably do. This is an interim payment to help smooth over some of the financial issues (which are really the last thing you want to be concerned about at that time) with all the costs of arranging a funeral and payment of immediate debts
Many insurers will provide this payment but you should check to make sure yours is one of them.
So, what about the rest of the money?
Okay, this is where we get into some of the important technicalities and we will try to keep this as simple as possible.
You have an insurance policy. This means that you are what the insurance company calls ‘the life assured’. Simply put, it is your life that has been insured.
Alongside this is “the policy owner”. The ‘policy owner’ may not be the one insured but they are the person that ‘owns’ the policy.
Now, the ‘life assured’ and the ‘policy owner’ can be the same person (you) but that is not always the best way to structure Life insurance. Because things are a little different when it comes to death (this is part of the ‘no’ issue).
When it comes to covers such as Trauma, Income or Mortgage Protection, and Health cover, because you should receive the money directly and you will be able to choose what to do with it being the ‘life assured’ and the ‘policy owner’ can make sense.
Now let’s assume that you (the “life assured”) are also the “policy owner”. On your death, the “policy owner” is the only person that the insurance company who will pay anything to. Because you’re dead the ‘policy owner’ is now your ‘estate‘. And your estate will have to go through probate which, with simple estates, can be reasonably quick, maybe a case of weeks, but if it is complicated or any issues pop up (and there are many that can happen!) it could be months or even years until probate is granted. And until then all funds are frozen and the insurer will not make a payment until it is all sorted out.
And that can cause real problems.
Hang on! It is my insurance policy and I pay for it!
And while you may be paying the premium, the insurance company is not concerned about where the money comes from (as long as they get it, of course).
For instance, if you could persuade your neighbour or a complete stranger to pay for your policy (and, if you can, please let us know how) that neighbour or stranger would not benefit directly from any payouts from your insurance (because they are not the “policy owner”) despite the fact that they have been paying for it.
Obviously, if you are dead, as the ‘policy owner’ you can’t make a claim or sign anything . And the insurance company needs those legal documents to pay the money. If you look at it from their perspective, they could make a large payment to somebody and then, at a later time, find that another person is also making a claim to it. Suddenly, there are real legal problems and that is something they try to avoid.
But I have a Will!
Having a Will is really important to ensure that you have made your wishes clear.
With a Will, it is likely that probate will be quicker and that your wishes will be followed (but, believe it or not, there are still no guarantees there – this dying thing can be quite tricky!)
But if you die without having a Will (which is called being “intestate”) then the Courts will decide who gets the money. And that may mean it does not go where you wanted. There are certain rules regarding the order of people that will benefit from your estate and, strangely, your partner or spouse may not be at the top of that list.
And making a Will need not be that expensive. Of course, you can use a high charging legal company (and if things are complicated it may be worth the cost) but if it is a simple estate you could do your own Will (there are many internet sites that will give you a basic template). If you decide to do it yourself, we advise getting a lawyer to run their eye over it, to keep a copy (a Will is no use if nobody knows where it is!), and also to sign it as a witness.
So, if you don’t have a Will in place, right now would be a good time to consider getting one done.
Need more help?
Get in touch and we will talk through your situation and provide free, no-obligation advice.
