Life insurance is a lump sum paid to your beneficiaries upon your death. It covers expenses such as debt, funeral costs, and income replacement.
Choosing a policy depends on your needs and priorities. Consider your goals and compare quotes from reputable companies with good third-party ratings to get started. Click the www.lifeinsuranceupstate.com to learn more.
Life insurance gives you peace of mind in knowing that, in the event of your death, your loved ones will receive a lump sum of money to help pay for funeral expenses, everyday bills, lost income, debts, child or college tuition, and other costs. It also can be used for estate planning and legacy funds.
Depending on your needs, you can choose from different types of policies. Some, such as term life, provide coverage for a specific period. Others, like whole and universal life, offer permanent coverage. Finally, some whole life policies have a cash value component that may grow over time.
When deciding how much coverage you need, consider all of your current and future financial obligations. You might want to include your mortgage, children’s college education and other large expenses. You can calculate how much coverage you need by adding up all these costs and subtracting your other savings and existing life insurance.
Many people purchase life insurance to cover end-of-life expenses such as funeral costs. Another option is final expense insurance, which generally has a lower death benefit and requires no medical exam. Lastly, some people buy life insurance for business purposes, such as key person life insurance or buying an accidental death rider.
Once you decide on the type of life insurance you want, you can start a formal application. You will need to answer a series of questions and submit a medical history form or records, which can be done at your home or office. Some insurers use “accelerated underwriting,” which skips the medical exam and approves applicants with some health information gathered from third parties. Other companies use a traditional process with medical exams and a waiting period.
Premiums
A life insurance policy requires premiums, which are the regular payments made to keep it active. The premiums help the insurer cover outstanding liabilities, and ensure beneficiaries receive the payouts they are owed upon the death of the policyholder. Some life insurance companies also use some of the premiums for operating expenses such as salaries, office space and other business fees.
Premiums are typically not tax-deductible, and the amount you pay depends on a number of factors, including your age, health, lifestyle and policy type. For example, young people pay less than older adults because they have a lower mortality risk. Your family’s medical history and dangerous jobs or hobbies can also impact your life insurance rate. Additionally, smoking is a major factor that may lead to higher rates.
Many life insurance policies offer a variety of options and riders that allow you to customize your coverage. For instance, you can add a waiver of premium feature to your policy in case you become terminally ill. This can reduce your out-of-pocket costs and protect against financial hardship for your loved ones.
Other factors that can affect the premium cost include the type of policy you choose (term versus permanent) and the death benefit amount. A larger death benefit will usually require a higher premium than a smaller one. Finally, some types of permanent life insurance allow you to use the accumulated cash value to cover your premiums, eliminating out-of-pocket payments. Talk to a representative to learn more about the specifics of life insurance premiums and what options might be best for your unique situation. They can also provide guidance on the best way to maximize your benefits while keeping your life insurance cost within budget.
Maturity
Life insurance policies usually have a maturity date, which is the expected end date of the policy. The maturity date may be when the insured person reaches a certain age, or it could be when they reach what is called their “natural life expectancy” according to the Commissioners Standard Ordinary (CSO) mortality tables used when the policy was underwritten.
When a life insurance policy reaches its maturity, the insurer distributes the policy’s cash value to the policyowner, or in some cases, it may be transferred to another person. This money can be used to pay for a variety of expenses, such as funeral costs, debts, estate taxes and ongoing living expenses. In some cases, the money can be used as collateral for a loan or for investing in securities.
Whole life insurance is expensive, but it offers permanent coverage and premiums that never increase, regardless of health or age. It also builds up a cash value over time, which can be accessed by the policyowner during its lifetime.
The problem with whole life insurance is that many of these policies are scheduled to mature when the insured reaches age 100. This can leave the policyholder (and their heirs) with nothing, despite decades of paying into the policy.
A common solution to this problem is the addition of a Maturity Extension Rider, which allows the policyholder to extend their coverage past the natural life expectancy for their age group. However, these riders must be elected years in advance and typically cost extra. This is why it’s important to understand your policy’s maturity date before it reaches that point.
Death Benefits
The death benefit is the payout your beneficiaries will receive if you die during the term of your life insurance policy. This is the main reason why people buy life insurance, to provide financial security for their loved ones in case of their death. It’s important to carefully consider who you want to name as your beneficiaries and review them periodically, especially after major life events like getting married or having a child.
The most common way for a beneficiary to receive the death benefit is in a lump sum. This is usually paid by check or deposited directly into their bank account electronically. Beneficiaries also have the option to choose a lifetime annuity, which will pay them regular installments until the death benefit is depleted or their life ends. This option can be a good choice for beneficiaries who may need income from their life insurance beyond the lump-sum payment.
Alternatively, beneficiaries can choose to leave the death benefit with the insurer in a retained asset account and receive interest payments on it, similar to an investment account. This option can be useful for beneficiaries who need income from their life insurance beyond the lump-sum payout, but want to avoid taxes.
If the death benefit is left to a non-spouse beneficiary or to a charity, it’s a good idea to set up a trust so that the proceeds aren’t subject to estate taxes or the need to go through probate. This will also help keep the death benefits away from the control of unintended beneficiaries, such as creditors or other family members.
The size of your death benefit depends on the amount you chose for the policy and the type of life insurance you bought. Some policies have a fixed death benefit, while others allow you to increase it for an additional cost.
Taxes
Most of the time, beneficiaries don’t have to pay taxes on life insurance proceeds. But there are some situations where they might have to. For example, if they receive a lump sum death benefit that was earned after a period of interest accumulation (rather than immediately upon the policyholder’s death), they might have to pay taxes on the interest that has accumulated.
Some whole life policies include a portion of each premium that goes into a cash value account, which grows over the course of the policy. The insurer may also provide a cash value loan to the policyholder. Cash withdrawals from a life insurance policy are generally tax-free, as long as the amount you take out doesn’t exceed your cumulative premium payments. But if you borrow against your cash value and don’t repay it, the balance will be taxed.
If your employer pays the premiums for your group life insurance policy, you might be paying taxes on those premiums. If the policy is worth more than $50,000 and your employer subsidizes some or all of it, the IRS might consider it part of your compensation.
If you want to change the owner of your life insurance policy, you will need to fill out a transfer of ownership form and call your insurer for an assignment of premium form. This is a complex issue, so it’s best to consult a licensed financial professional or tax advisor before you do so. You’ll receive a 1099-R form when you incur a taxable event, like a surrender or lapse of the policy, and a 1099-INT when you get taxable income, such as dividends or interest on death claims.
