The peace of mind dilemma
At some point in our lives, many of us are full of enthusiasm about buying a nice home for our families, ensuring a good quality of life for our loved ones, and providing a good education for our children.
These are all great intentions, but they share a common characteristic – they are very expensive.
Not far into the future, we realize that while building these commodities for our loved ones, we’ve built, in parallel, a big risk for them – that if something were to happen to us, their financial future would be threatened.
In the case of such an unforeseen event, they would have to part with these hard-earned amenities and drastically reduce their standard of living.
This is usually the reason why people start thinking about life insurance in the first place. They want to ensure that if something were to happen to them, their loved ones would be financially secure. They want peace of mind.
Life insurance to the rescue
Life insurance ensures that if something happens to us, the assigned beneficiaries will receive a payout specified in the insurance policy. Life insurance policies also often have an investment vehicle attached, which simply means that the payout will be more than the total sum of our installments. Isn’t that great?
There are different types of life insurances, of course. The broad distinction is between term insurance and whole life insurance. As can be seen from the names, term insurance is usually for a specific number of years, e.g., 10 or 20.
Whole life insurance provides cover for the whole life of the user. Whole life insurance has many benefits, such as a deferred tax advantage and accumulating a cash value through an associated investment vehicle.
That cash value can be used in multiple ways, such as borrowing money against it or getting the cash value for your retirement. Usually, life insurances allow us to specify multiple beneficiaries, as well as a hierarchy of beneficiaries.
For example, you might assign your partner as a primary beneficiary but specify that if something happens to you and your partner together, then the payout should go to your children, or to the guardian of your children, or to your siblings – to anyone whom you want to specify as a secondary beneficiary.
Life insurances usually provide cover for more than just fatal events. For example, such protection can include long-term disability, hospitalization costs, etc. All of these, of course, give even more peace of mind to the life insurance policy holder.
That all sounds great, but as we’ll see, life insurances have a very big risk, quite often hidden from the users, which threatens all the protection and that very peace of mind we were yearning for.
The BIG hidden risks of life insurances
In order to explain the risk, let’s take a typical life situation. One day, you decide to get life insurance. You put the policy in a drawer and think that you’ve gained the protection for your family that you wanted so much.
As the years go by, you might move to a new place and your children grow up, go to university, start jobs, and have their own families. Life goes on. One day, many years ahead, a fatal event happens to you.
Now here is the big surprise of which, unfortunately, you hadn’t been aware while you were alive – life insurance companies don’t have the legal obligation to inform your beneficiaries about the policies – and, more often than not, they don’t inform them.
Life insurance companies don’t have the legal obligation to inform the beneficiaries about the policies – and, more often than not, they don’t inform them.
Yes, that’s true. The life insurance company knows the names and contact details of your beneficiaries, but they don’t inform them about the policy. As a result, chances are high that your beneficiaries will not get the payout from the policy.
The only way to get the payout is for them to be aware of the policy. But, when you took out your policy, your children were small, and you put the policy in a drawer in your home or in a folder on your computer.
Do you think that, 40 years from that day, your children will remember the location of the policy? Chances are high that they won’t. Quite often, they are not aware of the very existence of the policy.
The whole peace of mind idea is just blown. You might wonder, how big is the problem?
How big is the problem?
The famous Californian attorney James L. Cunningham, Jr. puts it well in his book Savvy Estate Planning:
“According to CBS News, about $1 billion in life insurance claims goes unpaid every year. That’s because even though the insurance company knows you are dead, they have no affirmative obligation to reach out and pay the money to your beneficiaries.
The beneficiary has to submit a claim, but if the beneficiary doesn’t know about the policy, that claim will never be submitted. The insurance company knows you have passed, they know who the beneficiary is, but if no one steps forward, the company holds on to the money. I find this shocking.”
$1 billion per year just in the United States and only for life insurance. How big is the problem of protecting all types of assets from these risks? It’s huge. So-called unclaimed assets approach $100B in the US alone. Latest reports for the UK show £77B.
Globally, we are talking about trillions of dollars in unclaimed financial and digital assets.
And the upward trend is alarming – a $5B increase per year in the USA alone. As you can see, the problem is huge, global, and not related only to life insurance policies but to all types of digital and financial assets:
- bank accounts,
- payment wallets,
- online trading accounts,
- stock portfolios,
- company shares, etc.
There is no legal requirement for the companies that hold your digital and financial assets to inform your beneficiaries. Chances are high that your loved ones won’t be aware of many of these assets and, as a result, won’t inherit them at all.
Your hard-earned money will stay in the hands of the companies that were supposed to manage and protect them.
Digital inheritance to protect digital and financial assets
Digital inheritance is very helpful when it comes to ensuring that your loved ones will be aware of your assets, such as life insurance policies and bank accounts, and, as a result, will be able to identify and claim them. Digital inheritance services have several useful features.
A secure catalog of assets
Cataloguing your assets is easy, and all the information is fully encrypted, so that even in the unlikely event of a malicious security breach, your data will be protected.
The ability to designate beneficiaries
Usually, these are family members and close relatives. Typically, digital inheritance tools enable the user to choose whether the beneficiaries are to be informed about the assigned assets immediately or only in the case of an unforeseen event.
A mechanism for the detection of an unforeseen event happening to the user
This is a critical aspect of digital inheritance – the ability to detect whether something has happened to the user. The tools usually implement multi-step processes to ensure that such an event is detected.
The ability to notify the beneficiaries
If an unforeseen event is detected, digital inheritance services have the ability to automatically inform the designated beneficiaries.
Digital inheritance tools ensure that your loved ones will be automatically informed about your assets so they are aware of them and can identify them.
The last is a key difference between digital inheritance tools and other alternatives. Digital inheritance ensures that the notification of the assigned beneficiaries will be handled even without external intervention.
You don’t have to worry that your loved ones will forget the access details, the location of your life insurance policy, or the very existence of this policy. The digital inheritance tools will inform your loved ones proactively about the designated digital and financial assets.
With digital inheritance, in the event of anything unforeseen happening to you, your loved ones will be aware of your digital and financial assets. They will be able to identify and locate them and minimize the chance of unclaimed assets. Probably, your question is, do digital inheritance tools replace traditional life insurances?
The clear answer is absolutely no. They rather complement your life insurance and all your digital and financial assets, providing additional protection for these assets and ensuring that your loved ones will be aware of them in the case of an unforeseen event.
With the combination of life insurance and digital inheritance tools, you can achieve the much-desired peace of mind for yourself and your loved ones.