What Will Happen To Your Life Insurance If You Die?
Life insurance is designed to provide your beneficiaries with money in the event of your death, but many people don’t realize what will happen to their policy if they die before their term ends. For example, some life insurance policies pay out after a period of time, like five years; others are non-forfeiture, meaning that they will be paid to your beneficiaries no matter when you die within the terms of the policy.
How long will it take your beneficiaries to receive their benefits
Each policy and situation is different, but life insurance companies typically process claims within 60 days of receiving a death claim. However, if you die before your policy is fully paid for—like many people do—your beneficiaries won’t receive a payout right away. Instead, they will be subject to premiums as though you were still alive. They’ll receive their benefits once those premiums are paid in full. It takes some time to get used to living without someone who’s been in your life for years or decades, but eventually you can start planning what happens when your loved one passes away. Remember that life insurance policies exist to replace lost income and out-of-pocket medical expenses from funeral costs and other expenses associated with death.
A death benefit is paid before taxes
Often, a death benefit will be paid to your beneficiary in a lump sum without taxes being taken out. That means that if you have $100,000 of life insurance and you die while your children are minors, they’ll get $100,000 of income tax-free. Make sure that’s what you want—it might be worth it to pay taxes today for their sake in order to help them out later on. Just make sure your beneficiaries will appreciate it—or else there’s no point paying those extra premiums.
The beneficiary can be changed or removed
When you apply for life insurance, a designated beneficiary (normally your spouse or significant other) is named to receive all or a portion of your life insurance payout in case of death. What happens if you decide to change that person after you’ve been approved for a policy? How about if you remove them altogether because, say, they’re abusing drugs and alcohol or are gambling their money away. Whether or not an insurance company will agree to a change depends on several factors including: how long ago you applied for coverage, how long ago it was effective and if there have been any changes in your health status since applying.
There are no cash value accumulation features
Before you buy life insurance, be sure to read your contract. Not all policies accumulate cash value. Generally, whole life policies do not have cash value accumulation features. But some term and universal life policies do have them as an option for more flexibility in how you use your money and increase coverage over time.