The Insurance Policies Your Executor Needs to Know About
One of the most overlooked pieces of an estate plan is insurance. But overlooking insurance can cause a bigger headache than you think.
When you think about the inheritance you'll pass down to your heirs, you're likely thinking about your home, your savings, and maybe a few treasured family heirlooms. You're probably not thinking about things like your home insurance or car insurance. But when it comes time to settle your estate, your insurance policies are just as important as everything else.
There are four common insurance-related problems executors face, according to Evan Farr, Certified Elder Law Attorney and retirement planner practicing in Virginia, Maryland, and Washington, D.C. "These include failing to recognize that a policy existed; out-of-date beneficiary designations; lapse of coverage because premiums were not paid on time; and ambiguity surrounding whose responsibility it is to collect proceeds (the estate or designated beneficiary)."
To help prevent these problems, your executor needs to know about all of the insurance policies you have, even the ones you might not think are relevant.
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How overlooked insurance policies cause headaches for your executor
Some of the most obvious issues that can come up involve life insurance. Nearly half of parents said life insurance is a key piece of the estate their children will inherit, according to a survey of over 5,000 Americans Kiplinger conducted in partnership with Morning Consult.
But if your heirs don't know that life insurance policy exists, they may not know to file a claim. And if the life insurance beneficiary you designated years or even decades ago is still listed on the policy, the benefits might not go where you now want them to go.
Since a life insurance payout can represent a significant part of the financial legacy you leave behind, it's essential that you make your policy easy to find and make sure your beneficiaries know it exists. Otherwise, a payout could be delayed while your loved ones try to locate the policy or determine who is entitled to the proceeds.
That communication may be especially important. A Morning Consult survey commissioned by Kiplinger as part of our Trillion Dollar Talk campaign found that among adult children who knew their parents had a will, estate-planning documents, or a designated beneficiary, 35% didn't know how to access them. Making sure your executor and beneficiaries know where to find important insurance information can help close that gap.
Executors can also run into problems with home or car insurance. While an estate is being settled, the executor generally needs to make sure its assets remain appropriately insured. That can mean contacting insurers and determining what coverage needs to remain in place.
For example, if a fire, theft or other covered loss occurs while a home is part of an unsettled estate, problems could arise if coverage has lapsed or the insurer hasn't been notified of changes affecting the policy.
Your death can also change how an insurer handles an existing policy and who has authority to make changes or file a claim. Rather than assuming existing coverage will continue unchanged, your executor should contact the insurer to report the death and find out what documentation or changes are required.
With home insurance, in particular, your executor may also need to notify the insurer if the home becomes vacant or unoccupied for an extended period. Vacancy can affect coverage because an empty home can present different risks, including vandalism, theft and damage that goes unnoticed. Depending on the insurer and policy, different coverage or an endorsement may be necessary.
Similar issues can arise with any cars that are part of the estate. Your executor should contact the auto insurer before someone begins regularly driving an inherited vehicle or before coverage is canceled or changed.
Who is covered to drive the vehicle and how long existing coverage continues after the policyholder's death can depend on the policy and insurer. Giving your executor the information they need to contact the insurer and handle coverage appropriately can help protect both the vehicle and the estate.
How to make sure your executor can find your insurance policies
Whether you keep paper copies of all of your policies or you've gone digital, the easiest way to keep track of your insurance is to create a single sheet listing every insurance policy you own.
"A consolidated inventory of all of your insurance policies is perhaps the single most valuable thing you can leave for your executor," Farr said. That inventory should include the following details for each policy:
- Name of the insurance company
- Policy number
- Your agent or broker's name and contact information if you have one
- What the policy insures. This can be a broad label like home insurance, car insurance, or term life insurance. But you should also mention any riders or supplemental coverage here, too.
- Your current premium amount and how frequently you pay it (i.e. - monthly, quarterly, annually).
- Where to find copies of the actual insurance policies. If you have them downloaded as PDFs, you can link to those files in the spreadsheet where you're keeping this inventory. If you access them via an online portal, note where your executor can find those login details. If you keep paper copies, note where that paperwork is stored.
You can keep all of this information in a spreadsheet on your computer. Farr recommends updating it annually as details like premiums and coverage types change. If you switch your home or car insurance for a better deal, however, make sure to update the inventory right after you make the switch.
Writing out this inventory isn't enough on its own. The next step is to make sure your executor knows it exists and how to find it. "Ideally this document would be made available to your executor via a secure digital storage system (like a password-protected cloud-based file share or an encrypted digital safe)," said Farr.
The key is to make sure you store your financial documents, including insurance policies, in a way that is accessible enough to the person who needs the document, but secure enough that no unauthorized person can get ahold of your detailed policy information.
Related content
- How to Organize Your Financial Paperwork for Your Heirs
- Avoid These 12 Common Estate Planning Mistakes
- How Much Life Insurance Do You Need?
- What to Do When You're the Executor of an Estate
