A life insurance policy can be defined as a contract between an individual and an insurance company where the individual pays monthly premiums to the company in exchange of the company paying a lump-sum payment, referred to as a death benefit, to the selected beneficiaries of the insured person once he or she dies.
With that basic definition of what a life insurance policy is, let’s take a look at the 6 frequently asked questions when selecting a life insurance policy and their answers below:
1. What Are The Main Types Of Life Insurance Policies?
There are two main types of life insurance policies; term and permanent or whole life insurance. Term life insurance policy covers a limited period of time, say, 30 years, and pays a death benefit to the beneficiaries if the insured person dies during this time period.
There are different types of term life insurance namely level term, convertible term, mortgage term, annual renewable term, family income benefit, and increasing term life insurance.
Whole life insurance is a permanent insurance cover that lasts for the entire lifetime of an individual provided that the premiums are paid as required. The different types of whole life insurance include universal life insurance, variable life insurance, variable universal life insurance, and survivorship life insurance, just to mention a few.
2. Can I Convert An Insurance Policy After Purchase?
Yes, you can convert an insurance policy after purchasing and paying premiums for it. You can convert a term life policy to whole life policy and vice versa. There are advantages and disadvantages for each conversion and it’s advisable to get proper advice from your insurance company before making a switch.
3. Is A Life Insurance Policy Taxable?
Generally, the chosen beneficiaries of a life insurance policy are not obliged to pay tax for the death benefit they receive because it’s not considered as taxable income. However, in situations such as when the benefits are not paid out immediately after death and they accrue some interest, taxes will have to be paid on the interest earned.
If the death benefits are paid to an estate, the inheritors of the estate will also be required to pay taxes for the benefits.
4. Can I Change The Beneficiary Of A Life Insurance Policy?
Yes, you can change the beneficiary of your life insurance policy. There are different circumstances that may influence the change such as divorce or death of the listed beneficiary.
Different processes will be followed for each case. The insurance company will be able to guide you through the whole process.
5. How Much Do I Pay For Premiums For A Life Insurance Policy?
The cost of premiums will vary based on your age, your overall health, and your lifestyle. .You may pay as low as $13 a month for a benefit of $100,000. This, however, is dependent on the type of policy you take up.
6. Does Life Insurance Pay For Suicidal Death?
It depends on two main things. The first is how long the insured person who committed suicide had the life insurance policy for and the laid out terms of the policy.
You may need to consult with a lawyer such as Chad G. Boonswang specializing in matters of insurance to guide you on how to go about making a claim for a death benefit in the event of suicidal death of the insured person.