Buying a life insurance death benefit. It is similar to buying a life insurance payout for your beneficiary. A death benefit is one of the main reasons why you buy life insurance. It accomplishes the main goal of what life insurance is for. This would be in addition to a pensions death benefit if the policyholder had a program at work. This would not be an accelerated death benefit or an accidental death benefit. Accelerated death benefits work like this- if you were terminally ill and needed money to pay medical bills, a person could deduct some of the death benefits to help pay medical bills. If you purchase term life insurance, life insurance, burial insurance, final expense, whole life, or indexed universal life, you want your beneficiary to receive the death benefit. So if you purchase a face amount of $10,000, that’s what you want your beneficiary to have. I would advise you to meet with your beneficiary about how the money is going to be used. This also would be separate from an annuity death benefit. If you have a medicare supplement there would be no medicare death benefit included.
The main goal used to pay for your funeral expenses or cremation. however, some people like to leave extra for their family to pay for credit card debt, automobile loans, college tuition, and even mortgage payments. There are other varieties of ways that can be used as a death benefit. But most commonly it is your funeral expense.
If you buy a huge life insurance policy for example500,000 and you are leaving money to your wife and kids, you may be leaving it to help their financial burden or lifestyle. For example, taking a vacation, or traveling the world. They can use it for whatever they wish. There are no restrictions. The amount of coverage determines the premium for the policy.
Let’s cover some more things about a death benefit
When does a person receive a death benefit payout?
This does not happen instantly. or automatically. Sometimes the life insurance company does not always know that the policyholder has died.
The beneficiary or someone else needs to call the life insurance policy and let them know. The beneficiary has to file a claim.
A beneficiary should meet with the policyholder so if he or she dies the beneficiary would know where the policy is. If the beneficiary does not know they can check with the National Association of Insurance commissioners Life Insurance Policy Locator Service.
Complete a claim form aka as a request for benefits. Provide a death certificate to the deceased insurance company or agent. As soon as the provider confirms the policyholder’s death, then you will get the death benefit payout. I had to do this for my Mom who died on Valentine’s day 2018. It is best to check all the paperwork over that needs to be filed and make sure everything is correct to avoid delays.
How is the death benefit paid?
Most people accept a lump sum. That is usually in the form of a check ora direct deposit into the beneficiary’s bank account.
Other people may choose to convert the death benefit into an annuity. This would deposit the death benefits payout into an investment account from which annual annuity payment is made to the beneficiary until the funds are gone.
Does a death benefit ever decrease?
If the life insurance plan was a decreasing term mortgage Also if the client/policyholder misrepresented or lied on any medical or personal information on the application, it can be reduced. If the life insurance company finds out when you die they may decrease the death benefit.
The client/policyholder is expected to tell the truth including medical history and lifestyle including any risky hobbies when completing a life insurance application. If the Insurance company discovers false information, they may reduce the death benefit by the amount and premiums that you have paid in if you represented yourself truthfully. The carrier may also cancel your policy and deny your beneficiaries the death benefit payment that you have been paying for through your life.
Adjustable Life Insurance
Another thing that could come up is if you purchased an adjustable life insurance plan This is a plan where you can adjust the death benefit payout as your needs change.
Cash-value life insurance
This is a cash value life insurance that comes with an investment component that gains value over a period of time, usually years as long as you don’t take out the cash while you are alive.
A contestability period lasts 2 years after the policy was put in force. If a suspicious death occurs during the contestability period, it may cause a delay. The life insurance policy reserves the right to dispute any death claim. Insurance companies may delve into medical records and lifestyle as it may trigger an investigation.
When is a death benefit paid?
Once a death claim has been filed the death benefit can be paid out in 1-2 weeks. However, it can take as long as 60 days. The life insurance company may need more time to review the claim.
Is the death befit taxable income?
A death benefit he’s generally non-taxable if you paid your premiums using after-tax dollars. However, it could be taxable in certain circumstances.
If you put your death benefit in a trust like when the beneficiary is a child, payments to the child for his or her expenses may be taxed as the child’s income.
If you have an employer-sponsored plan, or group life insurance or if you paid your premiums with pre-tax dollars.
If you opted for a permanent life insurance policy with cash value such as whole life insurance. Any games you make from the cash value might be taxable if you withdraw them as cash
Please check with your financial planner to confirm these statements
Explanation of an accelerated benefit.
An accelerated death benefit is paid to policyholders who are still alive, and who have a terminal illness and are expected to pass away soon. Your life insurance company will require proof of life expectancy in order to qualify for this. Could be anywhere from three to six months to 24 months depending on the provider
Once you meet the qualifications, you can access a portion of the benefits under the accelerated death benefit Rider. These Riders are policy add-ons that are usually cost extra. However, the accelerated death benefit Rider is often included at no additional cost depending on your. These writers are used mostly in Whole Life policies.
This benefit can be used to relieve your loved ones from having to pay your bills out of their pocket. If you access a portion of the death benefit early you will reduce the total benefit. this means that there will be less to disperse to your beneficiaries when you pass away.
How to Name a Beneficiary
A beneficiary is a person or persons or entities you can choose to receive the death benefit payment after you pass away you can choose your beneficiary at the time you take out the policy. You should also periodically update your beneficiaries if circumstances change throughout your life.
Your beneficiary does not have to be a person, you can also name an organization. T or business.
Most people choose their wife or husband as a beneficiary. In some states, you’re required to name your spouse by community property law unless you ask for your spouse’s consent otherwise.
You cannot name children as the direct beneficiary of the death benefit, although you can direct the life insurance proceeds to go into a trust for them if they can access for necessary expenses.
If no one can claim the death benefit, it may go towards your estate. In this scenario it will be used to pay off any of your outstanding debts and it may be taxable.
This concludes the article on understanding a death benefit. This article was written by Mitch Wednesday from Advanced Mutual Group. I have been an independent broker for over 20 years. I specialize in burial insurance and Medicare Supplements. If you would like a no-obligation quote or have any questions please call or office toll-free 1-866- 598-8170 or 910-452-1922. Or you may email us at email@example.com Our website is www.advancedmutualgroup.com We have all the top-rated carriers and best prices available. We are also affiliated with Allstar Senior Benefits We can be found on the internet by clicking this link www.allstarseniorbenefits.com