Broker Check

Estate and Life Insurance Planning

April 13, 2020

There is an old saying in Washington: “Don’t let a good crisis go to waste.” The saying refers to the ability to get legislation passed during a time of crisis that would likely die in committee under normal circumstances.

Financial planners feel the same way when a crisis occurs. We constantly warn clients about the risks of not having sufficient life insurance and the need to create an estate plan. Under normal conditions it is too easy to put these things on the back burner because it does not feel like an eminent threat. However, now that the Coronavirus is dominating the news and upending all of our lives, life insurance and estate planning have become popular topics. In fact, recent data shows that there has been a sharp increase in public interest around Estate Planning and Life Insurance in recent weeks with many companies struggling to keep up with demand. Naturally, we hope that the warning that this public health crisis has provided will not be wasted.

A recent podcast highlighted the challenges facing a young couple in New York after they both contracted the Coronavirus. During the podcast the husband lamented how unprepared he was and that he was worried about not having any of their financial affairs in order. The couple eventually recovered from the virus but their fears during their illness were real. This anecdotal evidence is confirmed by the fact that the COVID-19 pandemic is causing even younger and healthier individuals to act to get their estate plan in order.
Estate Planning applies to almost all individuals and can be as simple as updating the beneficiaries on your retirement accounts and life insurance policies as well as making sure checking/savings accounts are titled correctly. It could also include drafting Power of Attorney documents for health care and finances. More in-depth Estate Planning can be accomplished through drafting legal documents such as Wills and Trusts.

Fortunately, many estate planning attorneys are able to work remotely so they can still help set up estate plans. Absent a custom plan drafted by an attorney, a plan a plan created using an online service is better than nothing at all.
Life Insurance can be a good tool to mitigate the risks of financial hardship should one die with financial obligations such as mortgage, student loans, college expenses, etc. Life Insurance premiums are determined by a process called “underwriting”, which takes statistical data points to determine the amount of risk the insurer is taking on (and therefore the premium charged) when offering a policy. If insurers are obligated to pay out higher claims due to more deaths caused by pandemics, such as COVID-19, insurers may pass the higher costs to the applicants or even reject or not issue the policy at all. They may also implement stricter underwriting standards to screen for more risks such as recent travel or recent illnesses. Therefore, life insurance may become more expensive and more difficult to get in the future.

However, every cloud has a silver lining. Currently, many life insurance companies are accepting applications without requiring a medical exam due to social distancing requirements. Therefore, the process of getting a policy may be less onerous than in the past.

Both Estate Planning and Life Insurance are important parts of one’s financial plan and we encourage individuals to at least have a discussion as to what steps need to be taken to mitigate certain risks.