What Are Death Benefits?
To put it simply, when a policyholder dies, beneficiaries receive a payout on the policy’s death benefits. Policy terms vary and the payout occurs when the policy is active (if payments lapse or certain other terms aren’t fulfilled, the policy stops being active).
You’re likely familiar with this concept, perhaps without knowing the actual business terminology. Essentially, this is the primary service offered through life insurance.
People want to know their loved ones are protected after they die, which is why they seek out this benefit. If a family relies on the income of a loved one, cashing out a life insurance policy will ensure short or long-term cushion depending on the policy terms.
How can my loved ones use this benefit?
There are no guidelines or restrictions placed on what is done with the money after the benefit is received. In most cases, benefits usually payout between 14-60 days. Payment may occur as a lump sum or annuity. In some cases, a policyholder may add a level death benefit to their policy. This allows a payout to a beneficiary regardless of the time frame of the policyholder’s death. With this optional choice included, the beneficiary will receive benefits even in the early days of the policy.
Is a Life Insurance Death Benefit adjustable?
Policies may be adjusted in specific situations and vary based on state laws and other related factors.
Alternately, a policyholder may receive an accelerated benefit, (ADB), which can be paid out early if a policyholder is terminally ill (with certain restrictions).
Can you borrow against life insurance death benefits?
No, you can not borrow against the death benefit.
In some cases, you can get access to funds before you die through an accelerated death benefit rider or possibly a chronic or critical illness rider.
An accelerated death benefit rider kicks in if you should ever need access to your benefit to cover certain medical expenses, and can payout up to 50% of the policy’s death benefit. These could range from in-home care bills to hospitalization bills to other medical expenses. In most cases, to draw from your benefit you’ll need to be diagnosed with a critical illness and have a 1-2 year life expectancy.
A critical illness rider is a type of ADB based on a specific diagnosis. For instance, a heart attack, stroke or any similar major medical event would kick the critical illness rider into effect.
Is a Life Insurance Death Benefit taxable?
In most cases, a life insurance death benefit is not taxable as income.
We’re life insurance death benefit experts and can help you with any questions you have based on the particulars of your situations. If you’d like to know more about how a life insurance death benefit distribution can protect your loved ones, reach out and let’s discuss.