Did you know that you have the right to name a second person to receive bills and notices for your life insurance policy? I have no idea what the number really is, but I am betting the number of death benefits that aren’t paid every year due to a policy lapsing accidentally is significant.
This is an issue that can pop up in a number of ways. A husband can have a policy that he doesn’t tell his wife about (yes, guys do that) and he can decide to balance his budget by not paying for his life insurance for a while. With the best of intentions he might be thinking when he gets ahead he will apply for another policy. Or what if the husband takes a job in Afghanistan and his policy comes due. With no second addressee no one else gets notices that the policy will be lapsing, has lapsed or can be reinstated. If he dies, well, lapsed life insurance policies don’t pay anything.
Having the beneficiary as a second addressee is not a bad idea. Who else has more interest in a policy staying in force than the person who will benefit from it? This is especially relevant when a marriage goes south. I recently talked to a woman who had gone through a nasty divorce. Her husband had made mention of the fact that he had a large life insurance policy so if something happened the family would be OK. After the divorce he missed a payment and apparently ignored the lapse notices and reinstatement offers. Even though his death was due to suicide, because the policy had been in force more than two years, the suicide clause would have made a death benefit payable. But, again, lapsed policies don’t pay anything and while he may not have cared about his ex wife, she is now raising their children without the $5 million that could have been there if she had been the second addressee.
The second addressee can be extremely important in business life insurance. Consider what happens in a buy/sell agreement where partners own a policy on each other. Partner A is the owner and beneficiary of a policy on Partner B and Partner B is the owner and beneficiary of a policy on Partner A. The sole purpose of the policies and the legal buy/sell agreement is to make sure that if Partner A dies, Partner B will have the proceeds of the buy/sell life insurance to purchase the deceased partner’s share of the company from his family. In this case if partner B had let the policy lapse for some reason, he would be legally bound by the agreement to buy out Partner A’s family, but wouldn’t have the funds to do it. That could lead to the situation they both were trying to avoid, a member of Partner A’s family becoming part of the business, or having to liquidate the business and split the proceeds. If an accountant or attorney, or the other partner, had been a second addressee it could have been avoided.
Another time to take advantage of the second addressee option on life insurance and/or health insurance is with parents, especially if they are slipping at all in the cognitive area. There are far too many instances of important senior life insurance lapsing because the whole bill paying thing becomes too complicated or too cumbersome. Have a talk with your parents and let them know that you are willing to be there as a backup so that they don’t lose important coverage they may have paid for a very long time.
Life insurance companies don’t just let policies lapse. If a payment is missed they will generally send out two late payment notices before the end of the grace period. Once the policy has lapsed they will send several notices, at first offering to reinstate just by catching up on the premium and after that by applying for and qualifying for reinstatement. But, unless you have asked them to contact someone else also, they will assume after several notices that the lapse was intentional.
Bottom line. Stuff happens. Those of us who pay for life insurance want to know that we won’t make a mistake and leave our families without that benefit. We want to know that if we’re in a coma, our life insurance will stay in force until it’s needed. If we change checking accounts and forget to change a draft premium payment, we want to know that it won’t lead to a lapsed life insurance policy. If you have any questions about how to set up a second addressee, contact Hinerman Group. You can also give me a call or email me directly. Let’s talk.