The Key Things You Must Tell Your Family About Your Life Insurance Policy
It’s always difficult to talk to your family about the possibility of your death. That also means it’s often hard to talk about Life Insurance. But there are some important things about your policy that your family needs to know.
You’ve already made the decision to get Life Insurance, at least in your head.
You understand that a good policy allows you to protect your family should the worst happen. And you want to ensure that you can live your life without having to worry about what the future might bring.
But you also need to talk to your family about your policy.
And that’s where things often get difficult.
Talking about Life Insurance also means that you need to talk about the possibility of your death. It’s an uncomfortable topic at the best of times. However, avoiding it also means that your loved ones won’t understand the full details of your policy.
You need to have that conversation.
As importantly, you need to offer as much transparency as possible to your family.
That brings us to a question – what should you tell your family about your Life Insurance policy?
These are the six key things to cover during the discussion.
Topic #1 – The Cost
This is especially important if you have a partner. Taking out Life Insurance requires you to pay a regular premium to keep the policy going. While this could be as little as $5 per week, it’s still money that goes out of the family budget.
This means you need to account for it.
Plan in advance to figure out how you’ll fit the cost of the policy into your budget. This will make it easier to confront the cost subject, should it become an issue.
Topic #2 – The Term Length
This refers to the length of the policy. Many Life Insurance policies expire after a certain amount of time. Your family needs to know what the expiration date is.
Knowing the date means that your family can remind you to renew the policy if it’s close to expiring. This prevents the possibility of your passing with an expired policy that doesn’t benefit your family.
This isn’t an issue if you have a Whole Life term. However, such term lengths often cost a little more, which may become another subject for debate.
Topic #3 – You Intended Use of the Cover
Your policy will ensure that your beneficiaries receive a lump sum of money upon your passing. However, the policy does not dictate how they should use the money. This could lead to irresponsible spending, causing various issues in the future.
That’s why you should discuss your intentions for the money, should your family need to claim on the policy. Typically, these reasons may include:
- Paying off any debt that you leave behind
- Paying off the mortgage
- Providing funds for your children’s education
- Handling day-to-day expenses in the absence of your regular income
Discuss why you consider each of these things to be important and how much of the cover you’d like to dedicate to them.
Topic #4 – Your Chosen Beneficiaries
This can be a difficult subject to broach, especially if you worry that it could cause issues in your family.
For example, you may choose to name your partner as a beneficiary instead of a parent, child, or sibling. This can lead to some awkward conversations, especially if somebody expected to be a beneficiary.
Still, this is an important topic to cover due to its practicality.
The intended recipient(s) of the money need to know who they are. If they don’t, they may not even know that there’s a policy for them to claim on. This places the onus on your insurer to track your beneficiaries down, which takes a lot of time.
When beneficiaries know who they are, they can lodge immediate claims. This means the claim can cover more immediate expenses, such as those of your funeral.
Topic #5 – Where You Plan on Keeping Important Documents
Your family needs to know this to ensure a smooth claim on the policy. Missing documents could result in delays in a claim. This may cause your family financial hardship in the immediate months after your passing.
It’s recommended that you choose a single, safe spot to keep all physical documents. A safe is a good choice, as is a locked desk drawer. Inform the beneficiaries of the location of the policy and provide them with the means to access it if needed.
It’s also worth keeping backups of any digital documents that you have. Store these in the cloud using a service like Dropbox, OneDrive, or Google Drive. You can password-protect these folders to ensure nobody who shouldn’t have access gains it.
Finally, make sure that all beneficiaries know your key policy details. This means that they have a way to start the claim process even if something happens to the documentation. These details include the following:
- The policy provider
- The policy’s commencement date
- The policy’s expiration date
- The policy number and any other unique identifying information
Topic #6 – Any Exclusions Relating to the Policy
An exclusion relates to any circumstances or events that your Life Insurance policy doesn’t cover. The most common of these are as follows:
- Dangerous activity
- Acts of war
- Aviation, though this usually only applies to private flights
- Illegal activity
If you pass away as a result of an event that’s excluded from your policy, your family will not receive a payment. Instead, the exclusion will void the policy.
You need to understand every exclusion that your insurer adds to the policy. No two insurers are the same in this respect. While the above are the most common, you may find others in your own policy. Alternatively, you may find that the policy includes fewer exclusions than you expected.
Either way, you need to know what these exclusions are to develop a deeper understanding of your policy.
Once you’ve done that, you can broach the subject with your family. Talk them through what each exclusion means in relation to your hypothetical passing. This will make them more aware of the rights that they have, should they need to activate the policy.
Having the Tough Talk
Nobody enjoys the prospect of talking about their own death. However, it’s a crucial conversation to have to ensure your family receives financial support if the worst happens.
The above covers the key topics that you should discuss with your family about your Life Insurance policy. We recommend sitting down with them, policy on hand, and running through each of these topics. Ensure that you offer your family plenty of time to ask questions. They should be as much a part of your decision to get a Life Insurance policy as you are.
It’s also okay if you don’t have all of the answers to their questions right away. Your family may provide some insight or ask questions that you hadn’t thought of. You can then take these questions to your provider to develop a deeper understanding of your policy.
Ultimately, talking to your family about your policy ensures there’s no room for misinterpretation. This will make the claiming process much easier, should the worse happen.
Now, you just have one question to answer:
To insure or not to insure?
That is a question that only you can answer, perhaps with the help of some professional advice. This is general information only and does not take into consideration your individual circumstances, objectives, financial situation, or needs.