If the advisor has used the company in the past, they can also contact the local insurance company wholesaler who they typically work with, to help start the settlement process.
Spouses are also afforded certain settlement options that are not made available to non-spouse beneficiaries, making it especially important for financial advisors to connect with the issuing company about any settlement options that may be unique to their client’s specific circumstances.
Financial advisors and beneficiaries should also be aware of another option they have—called a 1035 exchange—when settling death claims on annuities. If the settlement option that is best for the beneficiary is not available with the issuing company, there may be an opportunity to seek outside settlement options by transferring the death claim to a company that does offer the desired plan.
While 1035 exchanges can be a great option for beneficiaries who are not provided the options most suited for their situation by the original issuing company, not all companies will allow death claims to be moved under a 1035 exchange. To address this challenge, financial advisors can be a liaison for the beneficiaries by asking the surrendering company if they will honor the 1035 exchange request, without reporting a taxable event.
Advisors should also make sure that their client is aware that moving the contract to another company does not alleviate the need to settle the death claim, and therefore they do not have the option of just letting the new contract continue as a deferred annuity. By discussing these caveats, financial advisors will be able to bring all options to the table for their clients, helping them to understand and decide which step is most desirable.
One last, but very important thing to remember is that beneficiaries have one year from the date of the owner’s death to make their settlement selection. If they do not make their choice during that timeframe, they will likely be left with a lump sum distribution—which may not be what the beneficiary wants or is best for them.
Choosing which death settlement option is right for a client does not need to be a major headache, and financial advisors are best suited to help make an already difficult time easier for beneficiaries.
To make it as simple as possible for everyone involved, financial advisors should remember these helpful tips and resources for properly evaluating the landscape of available settlement options. By guiding beneficiaries through the process and acting as their confidant, financial advisors can help provide the plan that makes the most sense for their individual needs and will honor the legacy of the loved ones they’ve lost.
Michael R. Harris, CFP, ChFC, CLU, is a senior education advisor with the Alliance for Lifetime Income.