Keyman Insurance from a business that was bankrupt years ago

[dburrow]

Hello -- Just joined this site as a non-insurance lay person because I have a rather specific question that my research is not finding is specifically addressed in all the searching I've done.

TL;DR - In your "opinion" -- Is it believable that a keyman policy would be honored for a bankrupt small business that was dissolved 20+ years ago?

My father-in-law aquired keyman insurance from a manufacturing business that went bankrupt over 20 years ago. There have been a couple of smaller business endeavors since then.

I'm told that the policy, after some time, was arranged in a way that the premiums would be paid from the value of the policy or its invested values or some such, and is still in effect. I'm trying to get reliable information from my in-laws, but in essence, I distrust that I'm getting all the information, or what I'm told is credible.

I don't have any interest in the policy, other than to ensure that at my father-in-laws passing, that there is a reasonable belief that my mother-in-law would be able to make a claim and get benefit. This is effectively how they have planned for her survival at his passing.

What I'm asking is solely an opinion question, not a legal one. The terms of the contract are unknown to me and obviously the only thing that matters. I'm a skeptic, and a planner, looking to see if this meets with the sensibilities of experts, and if there is a need to have a contingency plan in place...

Thanks for your consideration..

 

[Lloyds of Lubbock]

The first thing you should do is make sure the policy is inforce.
Than get an inforce illustration to make sure the policy is doing what you expect it to do.
Look at the last annual statement, make sure ownership and beneficiary designations are correct
I highly recommend you talk with an agent.
The policy is valid as long as it is inforce.
The underwriting is done at the inception of the policy.
It is way past the contestable period, so it is a non issue.

 

[WinoBlues]

Who owns the policy?
Who is the beneficiary?
What did the insurance company say?

 

[DHK]

TL;DR - In your "opinion" -- Is it believable that a keyman policy would be honored for a bankrupt small business that was dissolved 20+ years ago?

Insurable interest and the need for insurance was established at the time of application. The policy will pay out when the insured passes away.

The policy's ownership and beneficiary should be updated since the business no longer exists. There may be Transfer for Value valuation that happens, but the policy can stay in-force and be paid out when the insured passes.

Understanding the Insurance Transfer-for-Value Rule

If you are banking on your life insurance payout being tax-free, you may be in for a surprise.

www.investopedia.com

 

[dburrow]

Thanks for the details... I never knew there would be such things as statements available or that illustrations existed...

To be 100% clear, this is just a self-protection activity on my part, there's been some bad choices and financial mismanagement and I'm just trying to avoid any financial impact of their (lack of) planning...

So I assume that the beneficiary would be my mother-in-law, but I have no artifact that tells me which insurance company, and I have not talked to them.

As I suspected, 10 seconds with an expert is like hours of internet search, if that even works... thanks!

Your response took me to new concepts/links:

Who is the life insurance policy owner? | finder.com

You can let someone own a policy on your life, but is it the right choice? Learn policy ownership options, benefits and drawbacks.

www.finder.com

What Is the Life Insurance Contestability Period? – Policygenius

In the first two years of your policy (the contestability period) your life insurer can review a claim and refuse to pay out if there’s evidence of fraud.

www.policygenius.com

The only way I can think of that would address my concerns would be to ask them (in-laws) if they have a statement. They are less open to discussing end-of-life arrangements, and are some what paranoid, and I don't really want to get too involved, I only really want to know before there's no time left that I get surprised about supporting my mother-in-law. It sounds to me like there is a reasonable expectation that this may be like it sounds...

I guess I inferred that a keyman policy kinda depended on there being a viable business it was in force to protect. Appreciate your insights....

 

[walthamny]

If the business owned the policy it would have been turned over to the Bankruptcy Trustee at filing and any cash value would have been used by the Trustee unless the amounts were very minimal. Any contract provisions like future benefits are basically void. Even if premiums were paid after bankruptcy filling would be asked to be returned to the Trustee. Bankruptcy fillings are public so the policy would have been listed on the petition. For a fee, you can get a copy of the filling. This is the most likely scenario. The policy is gone.

Now if the business did not own the policy but the business had promised to pay the premiums for lifetime, the business would have stopped paying premiums once bankruptcy is filled. Is it possible there is cash value and the policy is still inforce. Possibly. This is a question for the insurance company. As a third party, it is unlikely the insurance company will disclose anything to you.

 

[WinoBlues]

@dburrow

If you don't know the name of the company how do you know the policy is being kept inforce through cash values? And that it is a keyman policy?

Was the company dissolved at BK?
Did your FIL own the business?

It is likely that your MIL is not the beneficiary of a keyman. If it is truly a keyman.

This is all speculation on our part as there are no facts.

 

[scagnt83]

A lot of missing info here.

Even with a business owned policy, the wife could have been set up as Bene possibly.

But if the business did own the policy, it would have been considered an asset during the bankruptcy proceedings.

If it was a bonus situation and it was individually owned, then it certainly could still be in-force.

The possible Beneficiary can call the carrier, and the carrier will tell them if they are listed as Bene on any policies.

 

[adjusterjack]

The only way I can think of that would address my concerns would be to ask them (in-laws) if they have a statement.

A statement may identify the insurance company and policy number.

You have to have a policy in your hand to figure out if there is any coverage available.

Don't rely on anything you are told by anybody because chances are they have no clue after 20 years.

There are two resources where you can search the individual's name to see if a policy exists.

The first one, MIB, charges a fee:

MIB, Inc. - Assistance Finding Lost Life Insurance

www.mib.com

The second one, NAIC, I think is still free but now you have to solve a silly puzzle to prove you're human before you get into it.

https://eapps.naic.org/life-policy-locator/#/welcome

 

[WinoBlues]

You have to have a policy in your hand to figure out if there is any coverage available.

I do not believe that is accurate. 20 years plus and many things could have changed on the original policy. Loans, withdrawals, assignments and so on.

Once he knows the company a start would be the insureds Name DOB and SSN. However, ownership is king.