Question from a Beneficiary

[prg]

I am facing a situation about which I understand very little, and I hope you all can advise me or tell me where to get the proper advice.

I am, along with several others, the beneficiary of a relative's life insurance policy. He has various policies with various beneficiaries.

The policy in which I am named was quite expensive to set up, so I've learned (involving many fees). Its premiums are also high. But its payout would be significant.

Unfortunately, my relative—older now, and retired—cannot keep up with any of his life insurance premiums. Not for the policy in which I am named or any other.

The beneficiaries of the policy in which I am named, and I, are considering taking over the payment of the premiums, to keep the policy active. This will be a significant outlay of money, but it would likely be worth it if in fact the policy eventually pays out to us.

However, I have never heard of beneficiaries doing this. Is this an established option, or is it very much outside the norm in the insurance world?

What potential pitfalls should we be aware of? I know, of course, that we should familiarize ourselves completely with the policy before paying into it.

One thing I am sure of is that this policy does not "age out"—it will remain active for as long as it is paid.

I feel that we should inform the other beneficiaries of other policies, legally, that the premiums are no longer being paid by my relative and that they, too, have the option of paying the premiums themselves. This would, it seems, avoid unpleasant surprises in the future. Do we need a specific type of lawyer to manage this communication?

Thanks for reading. I have many questions at this point!

 

[DHK]

It's not a problem. You're asking to become the payor on the policy. A payor can be different from the contract owner OR the beneficiary.

And I'm reasonably sure the insurance company would be happy to accept your payments!

I would also recommend that you request to be a secondary addressee for premium notices - so you can know the status of the policy and make further payments, or whatever else. Have this done by each insurance company for each beneficiary.

All of this is relatively standard and you shouldn't need an attorney.

 

[adjusterjack]

The beneficiaries of one policy who decide to pay the premiums on that policy have no legal obligation to tell the beneficiaries of any other policy that they are paying for it.

However, if those beneficiaries of the first policy want to tell the beneficiaries of any other policy, there is no need for an attorney because there is no legal issue involved. Just say "Hey, we're doing this" and let it go at that.

 

[rousemark]

If you are going to pay the premiums I would suggest you have ownership transferred to you. Other wise, the current owner could cash the policy out or make other changes that might affect you after you have paid several years premiums..

 

[Newby]

I am facing a situation about which I understand very little, and I hope you all can advise me or tell me where to get the proper advice.

I am, along with several others, the beneficiary of a relative's life insurance policy. He has various policies with various beneficiaries.

The policy in which I am named was quite expensive to set up, so I've learned (involving many fees). Its premiums are also high. But its payout would be significant.

Unfortunately, my relative—older now, and retired—cannot keep up with any of his life insurance premiums. Not for the policy in which I am named or any other.

The beneficiaries of the policy in which I am named, and I, are considering taking over the payment of the premiums, to keep the policy active. This will be a significant outlay of money, but it would likely be worth it if in fact the policy eventually pays out to us.

However, I have never heard of beneficiaries doing this. Is this an established option, or is it very much outside the norm in the insurance world?

What potential pitfalls should we be aware of? I know, of course, that we should familiarize ourselves completely with the policy before paying into it.

One thing I am sure of is that this policy does not "age out"—it will remain active for as long as it is paid.

I feel that we should inform the other beneficiaries of other policies, legally, that the premiums are no longer being paid by my relative and that they, too, have the option of paying the premiums themselves. This would, it seems, avoid unpleasant surprises in the future. Do we need a specific type of lawyer to manage this communication?

Thanks for reading. I have many questions at this point!

Like Rouse said, do NOT become the payer unless you also become the owner.
If the relative is going on Medicaid within the next 5-years it will cause him (and you) a big problem if he assigns ownership to you. But a lot depends on your state laws and the cash value of the policy.

Also find out if it's a fixed premium (usually whole-life) and not flexible premium (usually UL or universal life) or (VUL Varible Universal Life). If it has a flexible premium find out the worst case rates from the company on how much you will have to pay in to keep the policy active to age 100. There is a chance that it's not worth doing even if he paid into it for many years.

 

[prg]

Fantastic, people. Thanks so much. I will get a copy of the policy into my hands and start figuring out the answers to some of these questions. That I and we should become owners of the policy, or that we could, is something I would not have known. Thanks again.

The other people named in other policies are, unfortunately, known to be litigious. It is my fear that if they are not notified by a lawyer that they too have the chance to take over premiums, they will not do it and later cry foul, claiming they weren't told or given the chance. But it sounds like any lawyer will do for this.

To be continued! Thanks again.

 

[adjusterjack]

Maybe your insured relative should cash out all his policies, pre-pay for his funeral, enjoy the rest of his money, and leave all you greedy beneficiaries to earn a living on your own instead of circling him like vultures.

 

[Matthew King]

Well I was going to comment on this but I saw you got all the help you needed! I like reading posts where everyone's helped!

 

[junkman]

Four positions: insured, premium payer, beneficiary, owner.

There may be tax effects depending on bla, bla, bla. Having litigious co-beneficiaries is problematic. Owner controls policy. Find a competent agent then add competent attorney specializing in tax & estates if appropriate.

Plan on fee for service if this becomes more complex. There are no commissions on in force life contracts.

The carrier may not give information without permission from the current owner.

You want an "in force " illustration under current and guaranteed assumptions. Order a policy change form too.

 

[prg]

Thanks all. This is a great start. I do think I will need further professional advice (lawyer, etc.)—for example, I don't know the answer to the question of what happens if one of my co-beneficiaries on this policy (there are 3 of us) dies suddenly before the policy has paid out.

Adjusterjack, believe me, I wish this relative had made other decisions about his money than buying a bunch of life insurance policies. Many of the policies, such as the one I am a beneficiary for, were very expensive to set up and maintain but have very little cash-out value currently. My relative does not want the money he has put into the policy I'm on—well into 6 figures—to be "wasted" with a small cash-out value.

If he had spared himself the set-up fees and the premiums and instead invested the money otherwise, he could have access to it now, as much as he needs; and presumably it would have grown in value from the time of his investment.

I wish I could go back in time, find out that he was buying these policies, and beg him not to do so.