Help a Reader: Blended Family Life Insurance

Here's an email I recently received from a reader:

I am divorced and about 6 years ago I bought a 20 yr term life ins. policy for my son (now 17) so I would have something to leave him if I died unexpectedly. 

I just re-married and my wife and I are shopping life ins.  She has 3 grown children and 1 age 14.  I want to keep that policy for my son, solely for him.  He has been diabetic for 12 years so he could have medical costs, also he is planning on medical school. 

I don't want to appear to play favorites, but her family has inheritance money that she will get someday.  Not knowing if my son will be included or taken care of fairly, I want to make sure I leave my son something. 

How do I approach this sensitive topic with logic and yet not appearing unfair or selfish?

What's your advice for him?

Comments

[Luis]

The only question you should be asking yourselves when shopping for new life insurance is how much to take out to make sure your kids are covered. Also, you do not have to discuss with your children who is getting what and how much. If they ever collect life insurance they also do not need to discuss who got what. Forget inheritance, that is not life insurance and is not part of the discussion when it comes to how much life insurance to take.

I ask you, if you die, who will your estate go to? Make sure your will is up to date.

[Lurker Carl]

Term life insurance is meant to replace income or labors of the deceased so a surviving spouse with dependant children can continue the same standard of living. The duration of the policy should coincide with youngest child to reach maturity, the payout amount should coincide with expenses required to maintain the household.

Don't confuse insurance with inheritance. That is two different animals.

[Ivy]

Why do you even need to discuss the existing policy. It's in place, no need to cancel it, the question is do you want to take out a second insurance to cover the 14-year old stepchild (the grown stepchildren won't need it).

[Money Beagle]

I think it's perfectly reasonable. One approach would be to outline the policy that's already in place, don't really even mention the 'I'm going to keep it' element, but maybe approach it as opening the door to discuss if a similar policy makes sense for the other children. That would open the possibility to questions, which you could answer with the info above, but if no questions arise, then you don't have to even go there.

[Jane]

NOT an expert on life insurance, and in fact all we have is through my husband's work (on him, I don't work outside the home, children grown) but for his policy I believe there was something on the form that said if a person was married, their spouse had to sign off if the beneficiary was to be anyone else. Might be just SOME policies that way, or yours might be fine because of pre-existing the marriage. Anyone know if this might be an issue he needs to consider?

[Carla]

I don't think there's anything sensitive, unfair or selfish about this situation. He's your son, it's your policy. Unless money is too tight for multiple policies, I don't see why it needs discussed at all.

[Jake]

I'll assume that you are shopping for life insurance with your wife to support her and your 14 year old stepson should you die prematurely ("Policy No. 1"). I'll also assume you are the insured and owner/payor on the term policy that benefit's your 17 year old son ("Policy No. 2").

First, make sure that the property settlement you reached with your ex-wife doesn't require you to maintain Policy No. 2. This may render moot any discontinuation of the policy. Also check to make sure that the beneficiary is in fact your son and not your ex-wife. Finally, under some state's laws divorce may automatically terminate your ex-wife's interests as a beneficiary in insurance on your life (or it may not).

Second, you have to remember that, even if you name your son as beneficiary of Policy No. 2, the proceeds of No. 2 will be included in your estate for estate tax purposes. This might not matter if you are under the $5M exemption but I bring it up anyway.

Third, as Policy No. 2 stands now, your son is a minor. Should you pass away, then your son's guardian (your ex-wife) would have access to those funds. You should either set up a trust (like an Irrevocable Life Insurance Trust)
The second option would be to leave the money "in trust" to your son, and name a bank or your mother or your cousin or your neighbor as "trustee" for the funds. You cannot assign an executor via a beneficiary clause in a policy. The executor has to be named in a will.

However, when your son hits 18, name him the beneficiary of Policy No. 2.

Have a a discussion with your current wife about all the reasons that you want to support your son with Policy No. 2. Explain that Policy No. 1 will go to support her and your step son. There is no playing favorites, only covering your responsibilities in case you die before your time.

[Old Limey]

I think that Jake has given the reader the definitive answer to his question and has covered all the bases. He obviously has a lot of knowledge in this area and sounds as if he is either an insurance agent or an attorney.

[jim]

I'd generally agree with Ivy & Jake.

Personally in my opinion it seems perfectly fair to keep a life insurance policy you already have setup for your son. Thats a policy that existed before your current relationship and so there should be no need to change it. However your new wife might want another policy that will cover her and her kids in the case you die. So I'd say keep the existing but consider adding a 2nd.

[Nick @ ayoungpro.com]

I agree with Ivy. The question here is really whether you want to/can afford to take out insurance policies for the other children.

[Steve]

1)"Not knowing if my son will be included or taken care of fairly"...
2) "How do I approach this sensitive topic with logic and yet not appearing unfair or selfish?"

Sounds like other more pertinent issues here to me...(1) set it up so you do know...(2) if you're talking about your new bride, she should understand your logic or you should understand her issue with your logic or you two should be able to work together in this...if you're talking about the stepkids then who cares, beauty of inheritance and life insurance is you're not around to hear the complaining...

[Jenny @ Frugal Guru Guide]

There's no reason to cover her kids. If she wants to be covered, then simply buy and additional policy for the amount that she wants in her name. Easy peasy. :)

[Jenny @ Frugal Guru Guide]

RE: Not wanting to play favorites...

While that's commendable, the 14-y-o is not your son. He has a father, and he's not you! He's far too old to see you that way even if his dad isn't in his life. While you are married to his mother and are an authority figure, that doesn't make him your kid. And that's okay. Again, if the wife wants life insurance coverage for herself (and her son), it should be addressed in a separate policy and should depend on their needs independent of your son's. Given the age of everyone involved, I would recommend that she get insurance to cover her kid(s) and you to cover yours, and neither should have one to benefit the other adult simply because there isn't a need. You've been independently working adults for quite a while, and as long as any children involved are taken care of, there's not really good rationale for there to be another life insurance policy.