Do you really get money from life insurance?
Yes, life insurance does provide money, but how and when you or your beneficiaries get it depends on the type of policy you have and the terms of the agreement. Here’s how life insurance payouts work:
1. For Your Beneficiaries (After Your Death)
Death Benefit
- Guaranteed Payout: If you pass away while the policy is active, your beneficiaries receive a lump sum (the “death benefit”).
- Purpose: This money can be used for any purpose, such as paying off debts, covering living expenses, or funding education.
Tax-Free:
- In most countries, life insurance payouts to beneficiaries are tax-free.
2. For You (While You’re Alive)
Some life insurance policies allow you to access funds during your lifetime:
a. Cash Value (Permanent Life Insurance)
- How It Works: Policies like whole life or universal life insurance build a cash value over time.
- Access Options:
- Loans: Borrow against the cash value (must be repaid with interest).
- Withdrawals: Take out money, reducing the death benefit.
- Surrender: Cancel the policy and receive the cash value (minus fees).
b. Living Benefits Riders
- Some policies offer “living benefits” for terminal, critical, or chronic illnesses.
- Allows you to access a portion of the death benefit to cover medical expenses or other needs.
c. Maturity Benefit
- In some policies, if you outlive the policy term, you may receive a payout (e.g., “return of premiums”).
When You Don’t Get Money
- Term Life Insurance: No payout if you outlive the term unless the policy has a return of premiums rider.
- Policy Lapses: If premiums are not paid, the policy becomes inactive, and no benefits are paid.
- Misrepresentation: Claims can be denied if false information was provided during the application process.
Yes, life insurance gives money, primarily as a death benefit to your beneficiaries. Some policies also offer financial benefits you can access while you’re alive. The key is choosing the right type of policy that moves with your financial goals and understanding its terms to ensure you and your loved ones benefit from it.