By: Cristina Santiago, Insurance Producer at Popular Risk Services
Life insurance plays an important role in our financial strategy. Its main goal is to protect our loved ones in the event of death. Since, we all have our own specific goals and life situations it is important to know more about this type of insurance and how it can adjust to our needs.
Insurance Producer, Cristina Santiago from Popular Risk Services shares some frequently asked questions about life insurance and its relevance to financial plans and risk management strategies.
Everyone may benefit from and/or need life insurance at different stages of their life. It can protect your family in the event of a sudden death at a productive stage in your life, protect a dependent with special needs, and it can even favor a person not covered by Puerto Rico’s estate laws. It can also be used to manage more sophisticated matters such as federal estate taxes, shareholder agreements, key employee compensation strategies, nonqualified retirement plans, college savings, and inheritance for children and grandchildren.
There are two main categories of life insurance: term and permanent life insurance.
Term life insurance provides coverage for a relatively low premium for a specified period. Typically, these policies are issued for 10, 15, 20, 25, and 30 years.
Permanent life insurance offers coverage that can last the insured's lifetime, as long as premiums are paid on time and under the agreed terms. Otherwise, the policy may be declared null and void. Permanent policies are also very popular because they can serve as a savings vehicle.
According to Santiago, now is the best time to purchase a life insurance policy. If today we enjoy health and financial stability, we should not postpone the decision for a future moment in which it may be too late.
The life insurance claim process is relatively quick and simple. To initiate this process, Santiago recommends contacting your insurance producer, who will assist you in completing the distribution documents. Along with this documentation, you must also submit the death certificate and the beneficiaries' identification documents. If the claim is approved, the company will send a check or make a direct deposit to the bank account of the beneficiaries.
No one under 21 can own a life insurance policy. However, insurance producers can design strategies that allow parents and grandparents, who are interested in leaving an inheritance, to acquire policies to insure the life of a minor. The policy can be transferred to the insured when they come of age or when it is understood that they are capable. This strategy allow us to transcend generations and guarantee the insurability of a minor for the duration of their life.
In Puerto Rico, an individual under 21 does not have the legal capacity to manage a life insurance benefit. In cases like these, Santiago recommends assigning an adult or trust as beneficiary in favor of the minor.
Life insurance benefits can be assigned to a beneficiary, even if there are no blood ties. They are only required to have some insurable interest when they acquire the policy and not at the time of death. For example, if an insured dies after a divorce, the former spouse may receive the benefit, even if there were no longer any legal or sentimental ties.
Life insurance is an excellent tool to benefit people who are not heirs required by law or who are not included in a will. This is because the Civil Code of Puerto Rico excludes from the estate the life insurance benefits payable to select beneficiaries. In Puerto Rico, life insurance benefits are often received tax-free, Santiago pointed out.
Santiago points out that we should consider disability and long-term care insurance.
Disability insurance is an essential risk management component for any productive individual. This insurance replaces some of the income lost as a result of an accident or a debilitating illness that prevents you from generating income. Without disability insurance, we would be at the mercy of qualifying for social security coverage and exhausting family savings, which will probably be insufficient. The chance of becoming disabled during a productive stage is about 25%, according to data from the Social Security Administration. This means that one in four people will become disabled, a risk higher than dying in a productive stage.
Also, a waiver of premium can be acquired for most life insurance policies. With this waiver, if the insured becomes disabled, the insurance company will assume payment of premiums until his or her productive age (typically 65) or until he or she recovers, whichever comes first.
Long-term care insurance covers care expenses not reimbursed or covered by a medical plan. This insurance covers costs related to an illness, condition, or accident, provided that the insured meets the definition of long-term care. Long-term care is defined by the insured’s inability to perform at least two of the six everyday life activities (bathing, going to the bathroom, organizing, dressing, feeding, and getting around) for a period longer than 90 days or when the insured has a severe cognitive condition, such as irreversible dementia or Alzheimer's.
Santiago stresses that it is important to periodically review your insurance program because a person’s financial reality changes over time.
Consult your insurance producer or your Popular One team to help them assess your situation. You can contact Popular Risk Services at [email protected] or by calling 787-213-0118, Monday to Friday between 8:00 a.m. and 5:00 p.m.