What is a life insurance policy?
A life insurance policy is a legal contract between you (the insured/policy holder) and the insurance company (also known as the insurer). This contract establishes the terms, conditions and amount that a company will pay to your beneficiaries, upon your death.
Generally, life insurance policies provide protection for the surviving family members. I say generally, because there are times when a company may purchase life insurance to cover one of their key employees whose death would cause severe financial strain on the company. Or a credit card company may offer life insurance to the card holder that will pay off the outstanding balance.
How Does a Life Insurance Policy Work?
Life insurance may seem like a concern of only modern society, but the idea has been around in some form since the days of ancient Rome. The reason for the concept's longevity is that in any society where people work and raise a family, death can be a dramatic financial, as well as emotional, setback. In those early Roman days, people actually collected money to help pay for the deceased's funeral expenses. Today, we purchase a life insurance policy that will cover those costs, as well as many other expenses, including medical bills and a home mortgage.
Life insurance has become more complicated over time. You can find a variety of insurance options and must contend with complex legal jargon in most policies. The basics, however, are fairly straightforward. Life insurance comes in two primary groups: whole life or term. If you choose whole life insurance, the policy is expected to cover the rest of your life. If you choose term life insurance, the policy will cover a smaller period, such as 5 to 10 years. After the policy term ends, you will need to renew it or purchase a new policy for coverage. When you purchase a policy, you are expected to pay ongoing premiums. The premium is paid once a month, once every three months or once every year. As long as the premiums are kept current and your policy has not expired, your beneficiary will receive the stated amount of benefits in your policy upon your death. For example, if you purchase a $100,000 policy, your beneficiary will receive that amount after your death.
Who owns the life insurance policy?
An insurance policy is a contract that is legally binding on all parties to its execution. When it comes to life insurance, it is imperative to completely understand the terms of the contract.
Usually the person who owns the life insurance policy is the person paying the premiums, but not always. The owner, whoever it may be, has the right to exercise control over the policy and the right to direct the life insurance company that sold the policy to take or refrain from action with regard to the policy itself. The owner may reserve the right to exercise their prerogatives with regard to the policy without the consent of beneficiaries.
A life insurance policy is a legal contract between you (the insured/policy holder) and the insurance company (also known as the insurer). This contract establishes the terms, conditions and amount that a company will pay to your beneficiaries, upon your death.
Generally, life insurance policies provide protection for the surviving family members. I say generally, because there are times when a company may purchase life insurance to cover one of their key employees whose death would cause severe financial strain on the company. Or a credit card company may offer life insurance to the card holder that will pay off the outstanding balance.
How Does a Life Insurance Policy Work?
Life insurance may seem like a concern of only modern society, but the idea has been around in some form since the days of ancient Rome. The reason for the concept's longevity is that in any society where people work and raise a family, death can be a dramatic financial, as well as emotional, setback. In those early Roman days, people actually collected money to help pay for the deceased's funeral expenses. Today, we purchase a life insurance policy that will cover those costs, as well as many other expenses, including medical bills and a home mortgage.
Life insurance has become more complicated over time. You can find a variety of insurance options and must contend with complex legal jargon in most policies. The basics, however, are fairly straightforward. Life insurance comes in two primary groups: whole life or term. If you choose whole life insurance, the policy is expected to cover the rest of your life. If you choose term life insurance, the policy will cover a smaller period, such as 5 to 10 years. After the policy term ends, you will need to renew it or purchase a new policy for coverage. When you purchase a policy, you are expected to pay ongoing premiums. The premium is paid once a month, once every three months or once every year. As long as the premiums are kept current and your policy has not expired, your beneficiary will receive the stated amount of benefits in your policy upon your death. For example, if you purchase a $100,000 policy, your beneficiary will receive that amount after your death.
Who owns the life insurance policy?
An insurance policy is a contract that is legally binding on all parties to its execution. When it comes to life insurance, it is imperative to completely understand the terms of the contract.
Usually the person who owns the life insurance policy is the person paying the premiums, but not always. The owner, whoever it may be, has the right to exercise control over the policy and the right to direct the life insurance company that sold the policy to take or refrain from action with regard to the policy itself. The owner may reserve the right to exercise their prerogatives with regard to the policy without the consent of beneficiaries.
Can I borrow money against my life insurance policy?
To keep things black and white, the answer is yes, it is possible to borrow from the cash value that accumulates within a permanent life insurance policy. However, it is essential that the policyholder understand the potential risks associated with borrowing from this account and how such a withdrawal may affect the policy in the future.
Cash value accumulates for a specific purpose, and it is in the best interest of anyone who owns a permanent life insurance policy to understand how and why this happens. In the beginning of the policy, the internal cost of the insurance is less than the premium charged to the policyholder. A percentage of the premium is essentially an overpayment, and that portion is held in the cash value account. As the years progress and the policyholder gets closer to their life expectancy, the internal cost of the insurance increases, meaning that less and less of the premium payment is an overpayment.
Also, if you own a whole life insurance policy, you can take out a loan against the cash value you have built up in the policy. Of course, you will have to pay back the loan with interest. If you die before you pay back the loan, the balance that you owe will be deducted from the death benefit.
Does suicide nullify a life insurance policy?
If you kill yourself within two years of the issuance of that policy, yes, they will not pay the claim. But, after two years, if you read the suicide clause of every life insurance policy it states specifically that there is nothing that we can use against you to not pay this claim even with fraud or misinformation on the application. We have to pay the claim.
Do you have to pay income tax on a life insurance policy?
No, because it is not "income". Income, which is what triggers income tax, is money I get in exchange for labor, whether it be paid in commissions, bonuses, wages or for barter. If I choose to buy an insurance policy, the payment that is made is not income because it is not the result of labor, but rather the payout of an investment I chose to make.
Is there tax on a life insurance policy?
Life insurance proceeds are not subject to the PA Inheritance Tax. whether paid directly to a beneficiary or to the estate.
Which Life Insurance policy is best?
Navigating through which life insurance policy is best for you can be a daunting task but there are a few simple questions that will help steer you in the right direction. If you are nearing retirement or have recently retired, need a plan that does not require you to answer medical questions or would simply like to leave your children or grandchildren a little extra and or have funds available to pay for final arrangements then a guaranteed issue life insurance policy is your best choice. This type of policy provides you with straightforward and simple protection and is the most easy to qualify for. You will not be required to take a medical exam and your premiums will stay the same forever.
If you have ever had trouble getting an insurance policy due to previous medical complications and expect to live for more than two years guaranteed issue life insurance is your most logical choice. It is easy to obtain and you can relax that knowing your children or grandchildren will have the funds available to cover final expenses.
Are there circumstances not covered by life insurance policies.?
The majority of policies do have certain situations and conditions which do not fall under their coverage territory. For example, suicide, or a preexisting medical condition about which the insured person has not told the insurer, is not likely to be covered.
To keep things black and white, the answer is yes, it is possible to borrow from the cash value that accumulates within a permanent life insurance policy. However, it is essential that the policyholder understand the potential risks associated with borrowing from this account and how such a withdrawal may affect the policy in the future.
Cash value accumulates for a specific purpose, and it is in the best interest of anyone who owns a permanent life insurance policy to understand how and why this happens. In the beginning of the policy, the internal cost of the insurance is less than the premium charged to the policyholder. A percentage of the premium is essentially an overpayment, and that portion is held in the cash value account. As the years progress and the policyholder gets closer to their life expectancy, the internal cost of the insurance increases, meaning that less and less of the premium payment is an overpayment.
Also, if you own a whole life insurance policy, you can take out a loan against the cash value you have built up in the policy. Of course, you will have to pay back the loan with interest. If you die before you pay back the loan, the balance that you owe will be deducted from the death benefit.
Does suicide nullify a life insurance policy?
If you kill yourself within two years of the issuance of that policy, yes, they will not pay the claim. But, after two years, if you read the suicide clause of every life insurance policy it states specifically that there is nothing that we can use against you to not pay this claim even with fraud or misinformation on the application. We have to pay the claim.
Do you have to pay income tax on a life insurance policy?
No, because it is not "income". Income, which is what triggers income tax, is money I get in exchange for labor, whether it be paid in commissions, bonuses, wages or for barter. If I choose to buy an insurance policy, the payment that is made is not income because it is not the result of labor, but rather the payout of an investment I chose to make.
Is there tax on a life insurance policy?
Life insurance proceeds are not subject to the PA Inheritance Tax. whether paid directly to a beneficiary or to the estate.
Which Life Insurance policy is best?
Navigating through which life insurance policy is best for you can be a daunting task but there are a few simple questions that will help steer you in the right direction. If you are nearing retirement or have recently retired, need a plan that does not require you to answer medical questions or would simply like to leave your children or grandchildren a little extra and or have funds available to pay for final arrangements then a guaranteed issue life insurance policy is your best choice. This type of policy provides you with straightforward and simple protection and is the most easy to qualify for. You will not be required to take a medical exam and your premiums will stay the same forever.
If you have ever had trouble getting an insurance policy due to previous medical complications and expect to live for more than two years guaranteed issue life insurance is your most logical choice. It is easy to obtain and you can relax that knowing your children or grandchildren will have the funds available to cover final expenses.
Are there circumstances not covered by life insurance policies.?
The majority of policies do have certain situations and conditions which do not fall under their coverage territory. For example, suicide, or a preexisting medical condition about which the insured person has not told the insurer, is not likely to be covered.
