Confusing Insurance Policy

Dear Mary,

I read your column all the time and can’t thank you enough for all the helpful money-saving hints you print. My mom bought 20-year term life insurance policies for my two sons when they were young in the 1970s. I know she finished paying on them and I know she didn’t cash them out. When my kids were in their late 20s, Mom told me she was going to give the policies to them so they could put whatever beneficiary they wanted on them. After she passed away, I found that neither of my sons even knew these policies existed. Now what do I do? Judith, email

Some rights reserved by Alan Cleaver

Dear Judith,

This is confusing. You say she bought 20-year term life insurance policies. The nature of term insurance is that it provides coverage for a period of time, in this case 20 years. As long as your mother paid the premiums, the insurance was in effect. After 20 years (sometime in the 1990s), the insured (your sons) could either drop the policy or pay annually-increasing premiums to continue the coverage. It sounds like they didn’t continue the coverage.

Term insurance, unlike whole life, has no cash value. How term insurance works is simple: If the insured dies during the term and the policy premiums are current, the beneficiary receives the face value on the policy as a death benefit. Once the term is up, if the policy is not renewed, it’s over.

For readers considering life insurance on kids, consider that Judith’s mother would have been wise to put those insurance premiums into a savings account instead. In the unlikely event that one of the boys would have died in childhood, the money would have been there to cover costs of burial. More likely, the boys would have a nest egg when they reached adulthood. Childhood deaths are statistically very unlikely.

Dear Mary,

My husband and I want to thank you. We got your Debt-Proof Living book many years ago, and worked to get out of debt and fund our Contingency Fund. The only debt we have is our home. We only have one credit card and we pay the balance in full. Our Contingency Fund is fully funded and even has extra money in it.

We recently learned that my husband will be laid off soon. He has begun looking for another job and we are cutting everything we can. I work full time in a local government job. You helped us prepare for this and we are very grateful. We just wanted to thank you so much. Doris and Elliot, Virginia

Dear Doris and Elliot,

I am sorry to hear you will be facing unemployment soon, but thrilled to know that you are well-prepared. I truly believe that God uses financial challenges to bring clarity to our minds on what really matters in life and what doesn’t. Thanks for your kind words, and please stay in touch so we can encourage one another in the coming days.

Question: In the event something were to happen to you, have you provided for your dependents through life insurance? If not, what is holding you back from purchasing life insurance for yourself? Join the conversation here.