Millions of people use life insurance as a safety net that will allow family members to pay bills, go to college, or support a business in case of the insured’s untimely death.
Ultimately, the thinking is if you’re the beneficiary on a life insurance policy, you have some degree of protection for your financial future.
Life insurance is a topic that you may feel you know at least a little bit about, but if you’re like many people, once you dig a bit below the surface, you can encounter some things that are a little more complicated.
One of the first things a beneficiary should know is that they don’t need a physical copy of the policy to make a claim. This is an especially important point because after someone you care about has died, the last thing you need is the stress of trying to track down life insurance paperwork. After all, many people purchase a life insurance policy years before their passing, which just increases the likelihood of a policy getting lost in the shuffle.
If you’re the beneficiary of a life insurance policy, you only need to know the name of the life insurance company. From there, you can reach out and inform them that a customer has died, and then they’ll provide you with a claim form.
While you won’t need the actual policy to file a claim, you will need to provide the life insurance company with a certified copy of the policyholder’s death certificate. Once you have the claim form, you should attach the death certificate to it. From there, you’ll be ready to submit the necessary paperwork to make your claim.
Another thing that beneficiaries should bear in mind is that a life insurance payout is tax-free. You read that right: Life insurance benefits are tax-free for the designated beneficiary, no matter how large the payout amount is. You don’t have to report life insurance proceeds as income unless the policy was transferred to you for cash or other “valuable consideration.”
Those standards don’t apply to most beneficiaries.
There are several differences in types of life insurance policy, which leads to another of the basics you’ll want to keep in mind: It’s possible that a beneficiary might not get the full policy face amount. If the policy was a cash value life insurance policy, and the policy’s owner took withdrawals against the cash value or loans that weren’t paid back, the life insurance company will reduce the payout amount accordingly.
Let’s say the policy in question had that face value of $1 million, but the policy owner took a $50,000 loan from cash value and neglected to pay it back before their death. The life insurance payout will be reduced accordingly by $50,000, plus any loan interest. And, since a beneficiary may not even know about the policy, let alone the policy’s owner’s actions, this might come as quite a surprise.
That’s just one example of how the specifics of a life insurance policy can impact the beneficiary’s payout. If you’re unsure about your life insurance policy or you want someone to walk you through your options, it can be a great idea to start with a financial services professional.
Life insurance policies can be part of a wide-ranging retirement strategy that keeps your legacy in mind.
Contact American Financial Investments, LLC today to get started on a strategy that can help take you to retirement and beyond. QCBN
By Ronald Stevenson and Barbara Clark Stevenson
About the Authors: Ronald F. Stevenson & Barbara Clark Stevenson own American Financial Security, LLC. They specialize in Retirement Income Planning, Social Security Maximization, Tax Free Income Design, Personal & Corporate Tax Preparation and Planning. For more information, call 928-771-8368 or visit AmericanFinancialSecurity.net, 3112 Clearwater Dr., Suite B, Prescott, AZ 86305.
Ronald F. Stevenson offers Advisory services through American Financial Investments, LLC, a Registered Investment Advisor in Arizona. Insurance products and services are offered through American Financial Security, LLC. American Financial Investments, LLC and American Financial Security, LLC are affiliated companies.
Leave a Reply