Prevent Life Insurance Surprises

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Angela Mahany was completely in the dark about how complicated her late husband’s finances had become.

Dick Mahany, in a loving effort years ago to make sure she would be set financially when he died, had borrowed money from a whole life insurance policy that had built up a cash balance to buy a term life insurance policy payable at his death. But when he used up the whole life policy’s value, he had to come up with enough cash to pay the premiums for both policies.

Angela discovered her husband had been doing this just a few months before he passed away in February 2017. By then, he was suffering the effects of Agent Orange exposure during the Vietnam War and could not help her figure out how to pay the premiums.

“When I was all of a sudden responsible for the finances, it blew my mind,” Angela Mahany, 73, said.

Her finances were far more complicated than the circumstances most people can expect to face when they become widowed. But being uninformed about the life insurance is not unusual.

“A husband wants to be in control, and he’ll take care of things,” said Paul Brustowicz, a former insurance agent and a grief counselor at his church. “The problems occur when he does not tell his wife about everything or what’s been done. Of course, this can also happen to a widower, if his wife handles the finances.”

Brustowicz recalled one woman who walked into the insurance company where he used to work and informed the receptionist that she could no longer afford the premiums on her deceased husband’s life insurance. The clerk looked up her policy number and confirmed her suspicion about the widow: rather than owe any money, she had $25,000 in death benefits coming to her. “The wife had no idea,” Brustowicz said.

The best way to prevent trouble, he said, is for couples to sit down together and look over their policy or policies. This includes knowing the name of the insurance company, who purchased the policy, the death benefit amount, policy number, and name of the beneficiary. All the information should be in one place and easy to find in the event either partner dies.

He also advises couples to prevent future problems by talking to their agent to make sure the beneficiary information is correct and the policy is still intact. For example, a second wife might be surprised to learn that her late husband’s life insurance names his first wife as the beneficiary. In another worst-case scenario, someone receives less money from a policy payout than he or she expected, because a spouse at some point stopped paying the premiums.

To collect the policy proceeds, the surviving spouse fills out a claim form and furnishes the insurer with a death certificate. After they get the money, Brustowicz advises them to proceed cautiously, because grieving widows and widowers often find that it’s difficult “to think straight.”

“Stick it in the bank, throw it in a CD, or use the money to live on,” but delay making a big financial decision, such as where to invest the money, he said.

Angela Mahany managed, with great difficulty, to pay her insurance premiums. But she was one day late in paying the term life premium, and the insurance company canceled the policy a couple months before her husband died, she said.  Her son-in-law called and persuaded the insurer to reinstate the policy.

The whole situation “was very stressful,” Angela Mahany said. Her advice to other women: “Know what’s coming down the pike.”

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Wendy Weiss

Excellent advice

Mike Marshall

Much more common than one would expect.

Despite lapse notices, annual statements, communications with agents this problem can a very difficult situation to overcome.

The real problem if often with heavily loaned policies. Very little or no surrender value a loaned out policy and the subsequent lapse triggers tax reporting. Seniors often have little no cash to pay the tax gain.

The bottom line on life insurance is to pay premiums and keep policy in force.

Geoffrey Hewitt

What this is, actually, is a total lack of financial education in both the primary and secondary school systems in the US as being a mandatory requirement. The lack of financial acumen among most American results in trillions of support dollars spent at both state and federal level. This problem could be greatly solved by financial education in both high school and/ or colleges. The savings in programs could be 10 or 30 times bigger. Furthermore, the quality of life, especially in retirement, would be greatly enhanced.

    Ken Pidcock

    I don’t know that it’s so much the lack of financial education (which, as Helaine Olen has pointed out, may not be terribly effective) as the growing complexity of consumer financial services. Some of that may be regulatory, but a good bit is engineered. My parents could never have navigated the current retirement planning landscape, but they didn’t have to. They had US Savings Bonds.

    Kalyn Cody

    Strong disagree. This problem, as presented in this post, is that crotchety old men refuse to work with their wives on financial matters. “Men handle money” is one of the more destructive aspects of the patriarchy.

Dave G

Many people spend more time planning their next vacation than planning their finances.


Excellent article. Planning is the key.

Paul Brustowicz

I agree with Kalyn Cody about the patriarchy. Men of the “greatest generation,” and those baby boomers who followed them, want to be in control and assume that the spouse will figure it out. Not gonna happen unless there is a serious sit down conversation with their financial adviser or insurance agent.

If you are a married woman reading this, do you know where your husband’s life insurance policy/ies are and if they have the correct beneficiaries? Good luck.

I love it when the blog gets lots of comments.

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