Five important things agents should remember
about life insurance
By Paul Martin, CPCU
I had a long conversation with National Alliance Life and Health Academic Director Bob Rogers about how agents can deliver the benefit of a life insurance policy to beneficiaries. Our talk turned into a review of the best practices agents should perform when they are delivering on the promise.
After death, the future feels uncertain. Relatives are grieving. Emotions run high. Everyone is telling the family, “Please let me know whatever I can do to help.” And in comes the person who can tangibly change circumstances with the proceeds of a life insurance policy.
Life insurance money can support the future. It can be the thing that allows those who have lost someone precious to get some relief. And, as Bob mentioned, even though people resist talking about—much less buying—life insurance, the most common thing beneficiaries say upon receiving proceeds is “I wish we had purchased more.”
Paying the proceeds of a life insurance policy is the ultimate end of the consultative sale. The agent making the delivery gets to complete the most honor-able of insurance promises which, in today’s insurance climate, offers a rare moment to shine.
Paying the proceeds of a life insurance policy is the ultimate end of the consultative sale. The agent making the delivery gets to complete the most honorable of insurance promises … .
A few things to investigate
Life insurance pays or it doesn’t. And most of the time it pays. There’s no valuation of the claim like ona property loss—the value is the benefit, period. A rare moment of clarity and help to the beneficiary.
So, to help life agents, which include many property and casualty producers who also sell life and benefits, let’s consider the five most important things agents should remember when the time comes for the life insurance to come through.
- Know the steps of making a claim. When an insured passes, the agent involved files a death claim form with the insurer. This form lays out the details of the insured’s demise and addresses important issues regarding the loss settlement method preferred by the beneficiaries, if not already delineated by the terms of the policy. A certified copy of the death certificate is included as part of the death claim process.
Death certificates are an important part of the final arrangements for the insured. Often, obtaining death certificates is a service facilitated by the funeral director. Certified death certificates are important not just for collecting life insurance but also for other benefits such as Social Security, company benefits, banking accounts, court proceedings, retirement plans, and even closing business accounts left by the deceased insured. So, multiple certified copies are typically a valuable help for those having to deal with these tasks.
What will the insurance company do? It will do some investigating and confirm the death of the insured. The company may look at the cause of death and consider if foul play was involved. The company will also investigate the cause of death if the insured passed during the two-year contestability period of a typical life policy.
Should the insured have died during the contestability period of the policy and the cause of death was determined to be in contraindication of a relevant detail in the insurance application signed by the insured, the insurance company may contest the payment, and return the premiums paid by the insured for the policy.
If there are no suspicions, the insurance company will then proceed to institute payment of the death benefit to the beneficiaries named in the policy. Beneficiaries are either “primary” or “contingent.” If the primary beneficiary(ies) is living, they will receive the percentage of the benefit the insured/policy owner had designated.
Unfortunately, from time to time, insureds fail to keep life insurance policy beneficiaries up to date with their life situations. For example, an insured divorces and fails to update the beneficiary upon remarriage. At the insured’s death, the insurance company is bound to pay
the death benefit to the beneficiary named in the policy, even if it were the wrong spouse. Many people have fought these kinds of mistakes in the courts to no avail. The beneficiary named on the policy gets the benefit. Period.
- What about the “check”? A very practical question regarding life insurance is how it is paid. In the past, the death proceeds were paid by a check to the beneficiary. Today, it is a bit different. It is common today for the insurer to deliver to the beneficiary directly or through the agent a check book. This is what it sounds like: a group of checks that can be drawn on an account by the beneficiary from a “non-bank” bank of the insurance company. The interest-bearing account has a balance that at the beginning is the same as the death benefit.
One purpose of these accounts is to protect the proceeds from creditors. Because the money from the life insurance policy is still technically in the possession of the insurance company, creditors may not make a claim upon it. Thus, the insured can withdraw or direct the funds by check when needed to go to whomever they wish, at a time that they wish, without worries about debt collectors getting to the money through the courts.
Another advantage of the approach is the insured is under no pressure to make immediate decisions regarding the use of the funds. As Bob mentioned, “Families should really take their time making decisions about what to do with the money.” After a death, the emotions of those closest to the deceased can lead to poor judgment, seeing money that could last for decades spent on emotional decisions.
- What if minor children are involved? Courts become involved when minor children are the beneficiaries of life insurance proceeds. In these cases, it may pivot upon whether the insured had a Last Will and Testament and whether that Will included the creation of a Testamentary Trust. A Testamentary Trust, frequently included in the Will, outlines who will be the guardian of the minor children and who will be responsible for the assets of those children.
Often the guardian is a close family member of the deceased who would look after the best interests of the children and spending the proceeds of the life insurance to the benefit of the children under their guardianship. The guardian should not be confused with the Executor of an Estate, who directs the execution of the deceased’s last wishes outlined in the Will. If the insured passed without a Will, also known as dying intestate, the law in the state where the insured resided will apply to the distribution of assets, including those applicable to minors.
These issues involving minor children and guardians are important reasons why insureds should regularly review and update their Wills and beneficiaries based upon changing life circumstances.
- Get ready for the conversation about insurance, wills and other benefits. The life insurance agent has potentially much more to offer when they serve their customers and their families after death. There may be group life insurance benefits that are in play. The agent can be integral in delivery of the group life “check book” from the employer. The agent’s involvement may be an important service to the benefits client, helping them make an awkward moment more informative, sensitive, and honorable.
They may provide help in educating dependents about the death benefit of a workers compensation claim, an auto accident, or both. The agent could be an important traffic coordinator for the grieving family between attorneys, funeral directors, courts, claims adjusters, and insurance companies. These situations show the importance of minor issues such as the number of death certificates needed and how the whole system works.
A word of caution: An insurance agent is not an attorney, unless they are, and should not assume those responsibilities with the family or others. However, the educated agent can be of huge value.
- Accepting the credit for a job well done. For agents who sell life insurance or benefits, they would do well to rehearse mentally what is involved in delivering on the promise of life insurance. It could happen any time. It could be an incredible time for their careers and the organization they represent to demonstrate that insurance agents don’t just sell, they come through for their customers when they needed them most. The unfortunate demise of a customer may become the ultimate opportunity for the agent to shine.
Paul Martin is director of academic content at The National Alliance for Insurance Education & Research. He works to develop, maintain, and deliver quality educational programs for the organization.