November 23, 2022
  • November 23, 2022

4 surprising things to know about life insurance

By on November 8, 2022 0

Life insurance is a smart and economical way to protect your loved ones. / Credit: Getty Images

Life insurance provides your loved ones with financial protection in the event of your death. If you die during the term of coverage, they will receive a lump sum cash payment that they can use to cover unpaid debts, medical bills, funeral expenses and more.

Some policies also come with additional benefits – and can even be a useful financial safety net should you need it later.

If you are in the life insurance market – or if you want boost the protection you already have – then talk to a life insurance expert now which can help you get started.

3 surprising things to know about life insurance

Here are three things you need to know when shopping for a policy.

1. Taxes do not have to be paid on the amount of the benefit

All life insurance policies come with a death benefit – a cash payment that your beneficiaries receive if you die. That in itself can be helpful to the loved ones you leave behind, but even better? It is generally not taxable.

The Internal Revenue Service does not require beneficiaries to report life insurance proceeds as gross income. This can help your loved ones avoid a costly tax increase in the year of your death, which can be vital for their financial survival.

Keep in mind: there is some exceptions to this rule. If the policy is transferred to someone or they earn interest on it, they may owe taxes. Speak to a tax advisor for advice specific to your situation.

2. Some policies allow you to withdraw money

A number of types of life insurance, such as whole life insurance and universal life insurance – have a cash value component, on which you can make withdrawals when needed. This can be useful if you have sudden expenses that you can’t cover, such as medical bills, unexpected household repairs, or a car accident.

Many policies also allow loans against them, which can potentially give you access to even more money in a pinch. You may not even need to repay the loan (although going that route would reduce your beneficiaries’ death benefits).

That’s why you should talk to a life insurance expert now. They can answer all your questions and help you get started with a policy that’s right for you.

3. A medical examination is not always necessary

Despite popular belief, not all life insurance policies require medical exams. Types of policies which may not require examination include simplified issue insurance and guaranteed issue insurance. Group life insurance – offered by your employer – may also not require it.

In some cases, life insurance providers may require only a short medical questionnaire rather than a full professional assessment.

Both of these options can be useful if you want a quick and hassle-free policy purchase process or if you have a pre-existing medical condition, work in a high-risk occupation, or are a smoker, as this can make it difficult to qualify for traditional policies.

4. You may already have it

Did you know that you may already have life insurance? Many employers actually offer a basic life insurance policy as an employee benefit (as well as medical, dental, and vision plans). The amount of coverage offered by employers is relative (often one to two times the employee’s annual salary) and may not be enough (you may have to supplement it yourself). Still, any life insurance protection is better than none.

If you are unsure whether your employer provides life insurance or the amount, contact your human resources (HR) department. They can help you determine if your coverage is sufficient or if you need to increase it privately. A life insurance expert can also help you guide you to the right plan.

Another surprising fact…

There are many types of life insurance policies, including variable life insurance, term life insurance and whole life insurance, and each has its own disadvantages and advantages. With some policies, your monthly payments, death benefit, or both can be flexible. Once your cash value account has grown enough, you may even be able to use it to fully cover your premiums.

If any of these benefits (or the benefits above) seem like something you could benefit from, it may be worth consulting an insurance agent or financial adviser for advice. They can determine the type of life insurance protection best suited to your needs and help you compare insurance companies.

Use the table below to review your options or speak with an insurance agent now to get started.

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