Do you have a lot of questions in your mind regarding the payout of a life insurance policy? Want to know what to expect out of your policy when it’s pay time for your loved ones? Well, we’ve prepared this detailed guide just to help you understand how things will be when you pass away.
Feel free to read all the questions and their answers – you’ll know a lot about payouts by the end of this guide. That said, let’s dive right in:
What are the types of Life Insurance Payouts?
There are two kinds of life insurance policy payouts; death benefit and maturity withdrawal. The first one is directly paid to your listed beneficiaries on your death. The latter one is when you outlive your insurance policy (usually happens in term life insurance). So, in this case, you get paid all the premiums you paid in addition to any cash value your policy accumulated.
What is Cash Value?
This is the amount of interest earned over the investments insurer makes from the premiums you pay. This is mostly done with permanent or whole life insurance policies. The interest earned is added to your policy’s value which you can withdraw in your lifetime or let accumulate to be paid to your beneficiaries.
What Are Beneficiary Payout Arrangements?
There are many depending on the company you’re working with, but some common ones include lump-sum payment, interest-based monthly payment, interest accumulation, and lifetime income, to name a few.
What is Death Benefit?
It’s the amount of money a beneficiary receives when the policy owner dies. Basically, the life insurance proceeds are called death benefits.
Will There be Any Taxes on the Payout?
Generally no, but in some certain conditions, there can be some taxes. For instance, if the proceeds go to the estate instead of an individual, then they can be taxed with overall money and assets owned by the estate. Similarly, the interest income accumulated after the death of the policy owner will be taxed as well. If you take out the cash value in your life, then this amount will also have some tax implications.
Who Will Get the Life Insurance Payout If My Beneficiary Dies Before Getting the Proceeds?
If you are alive, then you can put someone else in the beneficiary column. However, if the beneficiary dies with you or before withdrawing proceeds and there’s also no contingent beneficiary, then the proceedings will go to your estate.
What Do I Get Paid If I am Still Alive and Policy Matures?
If you’re still alive and the policy matures as well, then you will get paid the money you paid in premiums plus any interest accumulated over it. There can be some additions to this as well; your insurance service provider will guide you better.
Will My Beneficiaries Get Interest in Term Life Insurance?
No. Term life insurance policies do not earn interest, and only the coverage amount you selected when signing up for the policy is paid. However, the death benefit payment is guaranteed, and with some companies, you might be eligible for dividends.
Can I Sell My Insurance Policy?
Yes, you can, but that is allowed in only four provinces of Canada right now (Nova Scotia, New Brunswick, Quebec, and Saskatchewan). Keep in mind, when you sell the policy, the new owner will get the premiums you paid and the death benefit. You, on the other hand, may have to pay some tax on the total amount you get from the buyer in exchange for your policy.
How Can the Insurance Payout Be Used?
The beneficiaries can use the death benefit money however they like. If they want to set up a business, pay the debt, use for children’s college education, donate to charity, or invest somewhere, they can do that. The payout can also be used to pay for the deceased’s funeral expenses.
Will My Estate Planning Affect My Insurance Payout?
It can if you are not careful about your long-term financial planning and do not keep the life insurance out of your estate. WEALTHinsurance.com has a program to help high net-worth people better manage their estate and life insurance.
How Long it Takes to Get Insurance Payout?
This is something that varies from company to company, but the average time it takes to get the payment into the beneficiary’s bank account is 60 days at least. It is better to talk to your insurance company about this or inquire from their past customers’ beneficiaries about how long it took for them to get the funds.
What Are Some Reasons Life Insurance Proceeds Will Not be Paid?
There are various reasons the life insurance proceeds will not be paid, and you need to go through your policy’s fine print to know about them.
Some of the common ones include suicide, fraud (like faking your death), death because of smoking, dangerous activities like skydiving, motorcycle riding, bungee jumping, etc., illegal activities (drying while committing a crime), and killed in the war (only if you’re a civilian) and so on.
What Do I Need to Provide for a Life Insurance Claim?
If you outlive your policy’s term, you can just visit the company office, talk to the representative, and figure out how to go about getting your money back. This is because different companies have different policies regarding this. However, if you’re claiming death benefit, then provide a death certificate, claim form, and a policy document (the certificate issued at the time of policy purchase).
Parting Words:
Please take the answers given above with a grain of salt because all of this is generalized. Depending on the insurer you are working with, the policies of your province, and the conditions of your insurance policy things can be different for you.
Whatever answers we’ve given above will help you get an idea of what to expect in certain situations, but slight changes are a possibility.
