Surprising Facts About Life Insurance You Need to Know

Purchasing adequate life insurance coverage is usually a smart decision if you have loved ones or family members dependent on your earnings. People mostly buy a life insurance plan to financially protect their loved ones in case of their untimely demise.

To help you understand life insurance policies, this article provides some essential facts about how these policies work.

1.             Getting the Death Benefits During Your Lifetime

People usually believe that life insurance policies payout after death. However, this may not always be the case, and your life insurance benefits may start paying out during your lifetime. Your payout can also occur when you need larger payouts than your normal income.

One method of achieving this is purchasing an accelerated benefit rider, an add-on to coverage. It can let you schedule the money to be paid out if the covered person suffers from a terminal disease. This rider ensures that your family has adequate funds to pay for any expensive or urgent medical care necessary. The money can also financially protect your family if your illness renders you incapable of working anymore.

 2.          Death Benefits Are Exempted from Tax

If you or a family member is the beneficiary of the death benefits of a life insurance policy, remember that any money received will generally be exempted from tax. This money is intended to support the beneficiary and let them continue their normal lifestyle without tax deductions.  However, there are certain exceptions to this rule. The beneficiaries can be taxed on the interest accumulated if a policy is not paid out immediately, and as a result, the death benefit money accrues interest over time.

Therefore, adequate life insurance coverage is advisable to protect your family financially. Being tax-free makes insurance a valuable part of your investment profile.

3.           Named Beneficiary Vs. Name in Will

If you have named a loved one as your beneficiary in your life insurance policy, it’s most likely that this person will get the money from the death benefit, irrespective of whatever is stated in your will. This is a cardinal rule of life insurance.

Therefore, if you have stated in your will that your sibling should be the recipient of your assets after your death but have named your child as the beneficiary of a life insurance policy, then your child’s name will take precedence as far as that policy is concerned. As a result, your child will get the money from the death benefit, irrespective of what is stated in your will after your demise.

However, this rule has certain exceptions. The primary one is the revocation-upon-divorce statute which revokes any revocable dispositions made by a divorced individual to their ex-spouse in a governing instrument, including a life insurance policy unless expressly stated otherwise. The statute will kick in if a policyholder fails to change their beneficiary after the dissolution of a marital union. Therefore, it’s always advisable to update the list of beneficiaries of your insurance policy as per the situation.

 Before purchasing an insurance plan, you need to understand the key facts related to your insurance plan, including how the death benefits will be paid out. This will help you make an informed decision and be useful when a claim is made.

Final Words

Are you looking to purchase or update your life insurance policy? Contact our life insurance experts at Wissink Insurance to update your existing insurance policy or to purchase a life insurance policy tailored to your benefits and your preferred list of beneficiaries.