Should I Get a Life Insurance Policy and Create an Estate Plan Because of the Coronavirus?

As the coronavirus pandemic continues, the possibility of contracting the disease is forcing many people to take a closer look at their final arrangements, including what life insurance policies and estate plans they may or may not have in place. The fact is, having life insurance and an estate plan is something every person should have, regardless of the current public health emergency, so that they can take care of their family members and final expenses.

Regardless of what type of life insurance policy you have, all life insurance policies cover a COVID-19-related death. In fact, according to the National Association of Insurance Commissioners’ brief on “COVID-19 and Insurance,” there is no pandemic exclusion for life insurance.

Cash value insurance has a cash value savings component. It may fluctuate in value if the cash value is tied to equity markets, long-term interest rates or a specific market index, such as the Dow Jones Industrial Average or S&P 500, according to the National Association of Insurance Commissioners (NAIC). Coronavirus has impacted these markets, which would affect the cash value of life insurance policies tied to specific investments and markets. However, most of these policies have a minimum rate of return.

There are two basic types of life insurance: term insurance and cash value insurance. It’s crucial to understand the difference when you’re shopping for a life insurance policy.

• Term insurance: As implied by the name, term insurance covers the insured for a specific length of time — usually between one and 30 years, and if the insured dies during that time frame, pays a benefit to the policy beneficiary.

• Cash value insurance: Unlike term insurance that covers a specific time frame, this insurance pays a benefit upon the death of the policyholder without regard to a specific term. These types of life insurance may have a cash value:

  • Whole life insurance: Whole life insurance pays a benefit whenever the policyholder dies, and it is characterized by a premium that remains the same for the life of the policy. Once the premium payments reach a certain amount, the insured can withdraw cash from the policy if the policyholder decides to cancel the policy.
  • Universal life insurance: Unlike whole life insurance, this type of insurance offers flexibility in both the premium and the death benefit. It also may have a cash value that earns a money market rate of interest.
  • Variable universal life insurance: With this life insurance, your premium is put in a savings account that can be invested in stocks, bonds and money market mutual funds. As your investment increases, your policy value increases. Likewise, if your investment declines, so will your policy value. Some policies set a minimum death benefit regardless of how your investments perform. Also, you may be able to change the premium and death benefit amounts.
  • Indexed universal life insurance: The cash value of this particular policy is tied to a specific market index.

Purchasing a life insurance policy requires a bit of time and research to make sure you get a policy that fits your needs.

• Decide the amount of life insurance coverage you need.
  Do you want a death benefit that covers only your final expenses — funeral costs, settling remaining debts, purchasing a headstone, etc. — or do you need additional money to provide income for your family members?

• Determine the type of life insurance that will be best for your needs.
  It’s essential to review the different kinds of life insurance policies to see which one will best serve you and your family.

• Shop around.
  Talking with different insurance companies can help you find affordable rates and will enable you to find an insurance agent you trust to help you purchase the best life insurance policy for your needs.

• Complete an application.
  Once you know what life insurance policy you want, you will need to complete and submit an application.

• Undergo a health exam.
  Although not required for all policies, be prepared to take a health exam as part of the application process.

• Once approved, sign the paperwork and pay your premium.
  After the underwriters approve the policy, you will complete and sign any remaining paperwork and pay your first premium. You will be billed for future premiums based on the terms you set up when purchasing the policy.

A key component of financial planning or estate planning involves putting together a course of action to transfer your personal and real property following your death. For most people, this may be handled by following the terms and directions contained in your will.

Estate planning usually involves working with an attorney to draw up your will, but also may involve the participation of an accountant, financial planner, banker, life insurance agent or other professionals that may handle your financial affairs.

Under normal circumstances, working with these professionals can be handled routinely. However, due to the shelter-at-home and social distancing orders active in many states, this process can be more challenging to accomplish. For instance, you may not be able to meet with your lawyer in person or have papers witnessed and notarized as needed.

To overcome these obstacles, talk with your lawyer and other professionals to see what you can accomplish by phone, email, text and teleconferences. Lawyers and financial planners are not considered essential businesses in all states, so speak to your particular professional to find out if there are specific steps you need to take to complete your estate planning.

While papers can be transferred by mail, talk with your lawyer, banker or other professional to find out what steps to take to have documents witnessed and notarized. Banks are considered essential businesses, and, therefore, may be able to make arrangements for witnesses and notaries.

Everyone needs an estate plan, although some plans may be as simple as having only a will, while others may be more involved to cover medical and business needs. Having an estate plan will help determine numerous decisions related to your final arrangements, so your family, finances and funeral are handled exactly how you want.

• Determine who will handle your medical and financial decisions.
  As part of your estate planning, you should appoint someone to make financial and medical decisions for you if there comes a time that you are unable to do so.

• Designate how your finances and belongings should be dispersed.
  Even if you don’t have a lot of assets, documenting how you want your real and personal property divided up is crucial to ensure it goes to those people you want to have it.

• Name a guardian for your children.
  It is imperative to choose a guardian to care for your children in the event of your death. If you fail to do so, the court will appoint someone to care for your children, and that person may not be a family member or trusted friend.

• Transfer any business ownership.
  If you own a business, you will need to make plans to transfer the ownership of that business to another person or have it liquidated and the assets delivered to the person(s) of your choice.

Creating an estate plan may start with getting a last will and testament, but you may need to go beyond that to handle all of your medical and financial affairs. Here are some tasks to add to your estate planning checklist at any age.

While now might be a good time to set up your estate plan and final arrangements, these documents are not meant to be “set it and forget it” instruments. You will need to revisit these documents throughout your life in order to make changes when additions and subtractions to the family and changes to your financial situation warrant.

Chances are you’re staying home and staying safe during this pandemic or taking all careful protective cautions if you are performing an essential job. You’ll be glad you took the time to make these financial arrangements now, so you won’t have to worry about it down the road when things get back to normal.