Questions About Your Affordable Life Insurance Policy
Can a life insurance policy be cashed in?
If you have a permanent policy, like a whole life or universal life policy, there may be a cash value feature to the policy. For term policies, there is no accumulated cash value. If you have a life insurance policy that has a cash value attached to it, then you may be able to surrender (cancel) the policy or take out loans to access the accumulated cash value amount.
Can a life insurance policy be used as collateral?
In some cases the cash value in a permanent life insurance policy can be used as collateral to secure a loan, depending largely on the requirements of the entity issuing the loan. For businesses loans, it’s common for the lender to request to be made the beneficiary of the policy.
Do life insurance policies expire?
Term life insurance policies do expire at the end of the “term,” or period of time. Permanent policies like whole life or universal life do not expire, but they can be canceled if premiums aren’t paid.
Can you sell your life insurance policy?
Yes. In certain situations, a life insurance settlement company will buy your policy — but these companies typically only buy whole life or universal life policies. Life insurance settlement companies primarily look for people who have permanent policies with some level of cash value attached. Depending on the policy and the life insurance settlement company, it’s not uncommon for people who sell their life insurance policy to receive 50% to 70% of the total death benefit.
Can anyone take out a life insurance policy on you?
At one time, anyone could take out a life insurance policy on another person. But, the laws have changed, and insurance companies are strict about complying with them. Now, for someone to take out a life insurance policy on another person, they must prove that the death of the proposed insured (the person being covered) could have some sort of financial impact on them, and they have to obtain the proposed insured’s authorization for the coverage.
A great example would be if you wanted to take out life insurance on an aging parent. Although your parent’s death may have a financial impact on you (e.g., the family home is being left to you, but it still has a mortgage and your parent’s death would pass this financial responsibility on to you), you would still have to obtain your parent’s authorization for the coverage. Even in this situation, it would be easier to have your parent get his or her own policy and name you as the beneficiary.
Can I have multiple life insurance policies?
Yes. Many people carry multiple life insurance policies for various reasons. Some might carry a whole life policy, a term policy for their business, and an accidental death insurance policy. Others might have a group term life insurance policy through work and own another term life insurance policy on the side.
How does a life insurance policy work?
Life insurance policies are simply legal contracts. The life insurance company (the insurer) offers to cover you (the insured) per the terms in the contract and pay the person(s) listed in the policy (the beneficiaries) the agreed-upon amount in the contract (the death benefit) in exchange for paying an agreed-upon amount (the premium).
Which life insurance policy is best for me?
Regardless of what anyone may tell you, there is no one policy that is “best.” Determining which policy is best for you depends largely on what you need the coverage for and what your financial goals are. For most people, a basic term life insurance policy works best for their needs. For others, permanent policies like universal life or whole life are better. To know which solution is best for you, you have to understand your current and future needs.
What are life insurance policy loans?
Permanent life insurance policies have a cash value account attached to them. With these types of policies, the policy owner can take loans against the policy’s cash value to access the funds. If the insured dies and the loans haven’t been paid back, the outstanding amount is deducted from the total death benefit upon payout.
What is the difference between an annuity and a life insurance policy?
A life insurance policy protects you if you die too soon. An annuity protects you if you live too long. Life insurance companies offer annuities as a way for consumers to protect themselves against running out of income during retirement. They require either a large lump sum payment up front or a period of regular contributions similar to a 403(b), which is a retirement account for government employees and nonprofit organizations. Once the annuity becomes “annuitized,” disbursements begin and can last a few months or throughout the life of the owner’s surviving spouse, depending on the agreed-upon terms at the start of the annuity.