Go To BALI: Purnama: Full Moon

Go To BALI: Purnama: Full Moon

What is a beneficiary?

A beneficiary is the person or entity you name in a life insurance policy to receive the death benefit. You can name:

• One person
  
• Two or more people
  
• The trustee of a trust you’ve set up
  
• A charity
  
• Your estate

If you don’t name a beneficiary, the death benefit will be paid to your estate.

Two “levels” of beneficiaries
Your life insurance policy should have both “primary” and “contingent” beneficiaries. The primary beneficiary gets the death benefits if he or she can be found after your death. Contingent beneficiaries get the death benefits if the primary beneficiary can’t be found. If no primary or contingent beneficiaries can be found, the death benefit will be paid to your estate.

As part of naming beneficiaries, you should identify them as clearly as possible and include their social security numbers. This will make it easier for the life insurance company to find them, and it will make it less likely that disputes will arise regarding the death benefits. For example, if you write "wife [or husband] of the insured" without using a specific name, an ex-spouse could claim the death benefit. On the other hand, if you have named specific children, any later-born or adopted children will not receive the death benefit—unless you change the beneficiary designation to include them.

Besides naming beneficiaries, you should specify how the benefits are to be handled if one or more beneficiaries can’t be found. For example, suppose you have two children and you name each one to receive half of the death benefit. If one of the children dies before you do, do you want the other child to get the entire death benefit, or the deceased child’s heirs to get his or her share?

If the death benefit goes to your estate, probate proceedings could delay distributing the money, and the cost of probate could diminish the amount available to your heirs.

Choosing beneficiaries, and keeping those choices up-to-date, is an important part of owning life insurance. The birth or adoption of a child, marriage or divorce can affect your initial choice. Review your beneficiary designation as new situations arise in order to make sure your choice is still appropriate.

What are the principal types of life insurance?

There are two major types of life insurance—term and whole life. Whole life is sometimes called permanent life insurance, and it encompasses several subcategories, including traditional whole life, universal life, variable life and variable universal life. In 2003, about 6.4 million individual life insurance policies bought were term and about 7.1 million were whole life.

Life insurance products for groups are different from life insurance sold to individuals. The information below focuses on life insurance sold to individuals.

Term

Term Insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions.

There are two basic types of term life insurance policies—level term and decreasing term.

• Level term means that the death benefit stays the same throughout the duration of the policy.

• ecreasing term means that the death benefit drops, usually in one-year increments, over the course of the policy’s term.

In 2003, virtually all (97 percent) of the term life insurance bought was level term.


Whole Life/Permanent

Whole life or permanent insurance pays a death benefit whenever you die—even if you live to 100! There are three major types of whole life or permanent life insurance—traditional whole life, universal life, and variable universal life, and there are variations within each type.

In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company could charge a premium that increases each year, but that would make it very hard for most people to afford life insurance at advanced ages. So the comapny keeps the premium level by charging a premium that, in the early years, is higher than what’s needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.

By law, when these “overpayments” reach a certain amount, they must be available to the policyowner as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, benefit under the policy.

In the 1970s and 1980s, life insurance companies introduced two variations on the traditional whole life product—universal life insurance and variable universal life insurance.

LIFE INSURANCE: LEARN ABOUT LIFE INSURANCE

Why should I buy life insurance?

Many financial experts consider life insurance to be the cornerstone of sound financial planning. It can be an important tool in the following situations: Replace income for dependents If people depend on your income, life insurance can replace that income for them if you die. The most commonly recognized case of this is parents with young children. However, it can also apply to couples in which the survivor would be financially stricken by the income lost through the death of a partner, and to dependent adults, such as parents, siblings or adult children who continue to rely on you financially. Insurance to replace your income can be especially useful if the government- or employer-sponsored benefits of your surviving spouse or domestic partner will be reduced after your death. Pay final expenses Life insurance can pay your funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance. Create an inheritance for your heirs Even if you have no other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries. Pay federal “death” taxes and state “death” taxes Life insurance benefits can pay estate taxes so that your heirs will not have to liquidate other assets or take a smaller inheritance. Changes in the federal “death” tax rules between now and January 1, 2011 will likely lessen the impact of this tax on some people, but some states are offsetting those federal decreases with increases in their state-level “death” taxes. Make significant charitable contributions By making a charity the beneficiary of your life insurance, you can make a much larger contribution than if you donated the cash equivalent of the policy’s premiums. Create a source of savings Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner’s request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of “forced” savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim).

Insurers Prepared for Claims from Fatal Minneapolis Bridge Collapse

The insurance industry is vowing to take care of any claims arising out of the Minneapolis bridge collapse tragedy without delay.

"There will be no exclusions – it will all be coverable. The industry wants to take care of this in a timely manner," said Mark Kulda, vice president of public relations for the Insurance Federation of Minnesota.

Insurers expect that claims for auto damage, workers' compensation and commercial property damage will be the bulk of the initial claims to come in, according to Kulda.

Later, there could be claims and lawsuits involving the construction and design of the bridge and against state agencies involved in maintaining the structure, industry officials said.

The bridge known locally as the I-35W Bridge that hosted a heavy volume of traffic through downtown Minneapolis, Minn., collapsed during Wednesday's afternoon rush hour – the deadly tragedy was caught on security cameras.

As bad as the tragedy is, it could have been worse. Kulda said 200 rescue crews were on the scene of the collapse within one hour of occurrence. Kulda said the "top notch" rescue teams were aided by the location. The rescuers came from each of approximately 100 suburbs of Minneapolis and St. Paul. The Hennepin County Medical Center – only six blocks away – has the largest and highest rated trauma center in the state, according to Kulda.

"Everybody who could have been saved was rescued within an hour and a half," Kulda said. "There was an immediate response with boats and rescue equipment. It was super organized."

But emergency workers could not prevent all tragedy.

Around 40 construction workers were replacing concrete on the bridge at the time of collapse, according to Kulda. He said it appears that they all fell into the water and all but one has been accounted for thus far. He said there might be workers' compensation claims for these workers.

The I-35W Bridge is located at the foot of Lock and Dam Number One – the first on a north to south route and the largest on the Mississippi River. There are several shipping companies north of the lock that Kulda said could end up with business interruption claims. There is also a railroad line adjacent to the bridge and when it collapsed, part of it landed on a freight train that was traversing underneath.

Liability claims and lawsuits relating to the bridge design and construction could be coming as well. Minnesota has a relatively lengthy statute of limitations – six years, as compared to California's one year, for example, noted Kulda.

According to Kulda, the 40-year old bridge has an inherent design deficiency, in that the structure's weight-bearing mechanism only had one outlet. If that mechanism is compromised, there is no back-up system to help distribute the weight, he said. It is not a "redundant" weight bearing system.

When asked why a bridge would be constructed in this fashion, Kulda said it was a calculated risk at the time: "They didn't anticipate failure of a truss. They made an assumption – for some reason, it didn't work," he offered.

The constant spray of water coming from nearby St. Anthony Falls may also have contributed to the bridge's ultimate failure, Kulda revealed. In the winter, the bridge constantly ices over, requiring heavy applications of corrosive sand and salt. Eventually, an automatic de-icing device was retrofitted onto the bridge, adding extra weight and ensuring the continual corrosive process, according to Kulda.

This accident will have a massive impact on the Twin Cities for a long time, Kulda said. The bridge accommodated four lanes of heavy commuter traffic every day. There are two parkways and a railroad line underneath the bridge, as well as bike trails.

The heavily traveled bridge is inspected annually, according to Kulda, and has passed all inspections. The University of Minnesota's Center for Transportation Studies (located only two blocks away from the disaster scene) conducted an in-depth transportation safety analysis on the structure a couple years ago.

Claire Wilkinson, vice president of global issues for the industry's Insurance Information Institute, said state agencies could potentially face suits, if there were warnings that were ignored.

State agencies sometimes use "hold harmless agreements" which are clauses in liability policies that hold the parties responsible for the damage liable for subsequent compensation, Wilkinson said. "But the state will likely face exposure," she added.

While this time of year is a low traffic season for barge trade on the Mississippi River, Wilkinson anticipates there to be business interruption claims in addition to private vehicle collision and comprehensive claims, commercial vehicle issues and workers' compensation claims.

"There will ultimately be clean-up costs to deal with as well," Wilkinson said.

Kulda said there are lots of "smart people" that will be involved in the forensic investigation of the disaster. "There is no lack of experts here," he said. "There were 50 of them on the bridge when it fell. I think we will know very quickly how it fell."

Fifth Circuit Court Rules in Insurers

A highly anticipated federal appeals court ruling in a Hurricane Katrina class-action case has insurers breathing a little easier. The Fifth Circuit Court of Appeals in New Orleans ruled Aug. 2, 2007, in In re Katrina Canal Breaches Litigation, No. 07-30119, that property owners in New Orleans whose buildings were flooded as a result of levee breaches in the aftermath of the August 2005 hurricane have no standing to recoup their losses from their insurance companies because of the flood exclusions in their insurance policies.

The ruling could affect thousands of residential and business policyholders in the New Orleans area and save insurers an estimated $1 billion in payouts.

Plaintiffs in the case had contended that because their properties were flooded as a result of the levee breaches, a "man-made act," the flood exclusions in the policies were void. According to court filings, the plaintiffs argued that "the massive inundation of water into the city was the result of the negligent design, construction, and maintenance of the levees and that the policies' flood exclusions in this context are ambiguous because they do not clearly exclude coverage for an inundation of water induced by negligence."

The court concluded, however, "that the plaintiffs are not entitled to recover under their policies."

The court reasoned, according to an opinion written by Circuit Judge Carolyn King, "that even if the plaintiffs can prove that the levees were negligently designed, constructed, or maintained and that the breaches were due to this negligence, the flood exclusions in the plaintiffs' policies unambiguously preclude their recovery. Regardless of what caused the failure of the flood-control structures that were put in place to prevent such a catastrophe, their failure resulted in a widespread flood that damaged the plaintiffs' property. This event was excluded from coverage under the plaintiffs' insurance policies, and under Louisiana law, we are bound to enforce the unambiguous terms of their insurance contracts as written."

The American Insurance Association was quick to issue a comment on behalf of the many insurers the trade group represents. According the AIA, the Appeals Court ruling "corrected an earlier, flawed decision by US District Judge Stanwood Duval in which he constructed a man made v. natural causation distinction not found in property insurance policies in order to defeat a clear exclusion applying to the flood losses at issue."

AIA President Marc Racicot stated: "There has been tremendous pressure upon the courts and insurers to craft political 'solutions' to overcome the tragic events of Hurricane Katrina. Fortunately, the Court … has acted to preserve the sanctity of contract upon which private property and free markets ultimately depend.

"The Court's decision … reinforces the important principle that clear, contractual provisions should be applied as written."

Allstate, Encompass, State Farm and Unitrin were among the insurance companies named as defendants/appellants in the lawsuit.

The case was sent to the Fifth Circuit after Judge Duval, with the United States District Court for the Eastern District of Louisiana, ruled in November 2006 that ambiguous language in the water damage exclusions in some insurance policies left open the possibility that the plaintiffs could have standing to recover losses under their policies. Judge Duval refused insurers attempts to have the case dismissed. Instead, he sent the case to the Fifth Circuit Court for a review.