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.
Does Life Insurance Cover the Coronavirus?
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.
Types of Life Insurance Policies
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.
How to Get a Life Insurance Policy
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.
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.
Estate Planning in Light of the Coronavirus Pandemic
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.
Who Needs an Estate Plan?
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.
10 Steps to Create an Estate Plan
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.
Start with a will
In writing up a last will and testament, you can designate who receives your real and personal property, name a guardian for your children and set up a trust to take care of your children.
Set up a living trust
Placing your property in a living trust means your beneficiaries can bypass probate court to probate the will.
Implement health care directives
These forms allow you to name a person to make medical decisions for you in the event you are unable to do so. As part of these forms, you can state if you want life-saving measures or not under specific circumstances.
Name a financial power of attorney
This document allows you to name a person to handle your finances in case you are unable to do so.
Designate beneficiaries for your financial accounts and investments
By naming beneficiaries on your financial accounts and investments, those funds will automatically be directed to those persons upon your death.
Invest in life insurance
Find and purchase a life insurance policy that provides for your survivors.
Discuss estate taxes
If needed, talk with your financial advisor to determine if you need to make plans to reduce your estate taxes.
Make your final funeral arrangements
Once you decide your final resting place and how you want your life celebrated, write all of that down and put it with your will so your survivors can carry out your wishes. Make sure you make provisions for funeral costs.
Write up a business succession plan
In the event you own a business, document how you want that business handled following your death.
Keep copies of all documents
It’s important to keep copies of your will, financial documents, business succession plans, final arrangement plans and other documents. You should leave one copy of these documents with your lawyer and a second set with a trusted family member or friend.
Take Time Now for Peace of Mind Later
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.
About Karon Warren
- American Bar Association. "Estate Planning Info & FAQs." Accessed April 16, 2020.
- Davis Law Group. "Estate Planning." Accessed April 16, 2020.
- Insurance Information Institute. "What are the principal types of life insurance?." Accessed April 16, 2020.
- National Association of Insurance Commissioners. "NAIC Insurance Brief: COVID-19 and Insurance." Accessed April 15, 2020.
- NOLO. "12 Simple Steps to an Estate Plan." Accessed April 16, 2020.