Common Questions About Life Insurance
1. Is Life Insurance Tax Free?
There is generally NO INCOME TAX charged on the death benefit paid to the beneficiary of a life insurance policy. The beneficiary may need to pay some tax is if they take the death benefit on a payment plan, and then they only pay taxes on the interest paid to them by the insurance company, not on the death benefit itself. Another situation where some income tax may be owed is if the cash value of a Whole or Universal Life policy exceeds the limit allowed for the policy to be classified as life insurance (making it a MEC). Finally, if the life insurance policy is left to the estate (rather than naming a person or other entity as the beneficiary), the policy proceeds will go through probate with the rest of the estate, and be subject to taxes.
Estate taxes will be charged if the total estate, including life insurance proceeds, exceeds the exempted amount. This year, estate taxes are charged on the excess of an estate valued over $5,340,000. If a spouse is alive, federal estate taxes will not be charged until the spouse dies. Some states also charge estate or inheritance taxes. Their exemptions are usually smaller than what is exempted from federal estate taxes.
The tax friendly nature of life insurance makes it a very popular tool for people of all ages and income levels. Not having to go through probate also makes it incredibly easy and quick to get at the time of death.
2. Can I take out Life Insurance on someone else?
If you have an insurable interest in someone else’s life (meaning that they are a very close relative and/or you have a financial relationship with them), AND if they give consent for you to take out the policy, yes, you can take out Life Insurance on them.
3. Can debt collectors take my life insurance money?
If the person who died is the one who owed the money, no, debt collectors cannot take the life insurance proceeds away from the beneficiary. There may be an exception if the beneficiary was a co-signer on that debt. But they cannot take the money away from the beneficiary to pay the debts of the deceased (unless the beneficiary is the Estate).
If the beneficiary is the one who owes the debt, state law determines how much debt collectors can collect from the money the beneficiary collected from life insurance.
4. How do I find out if my parent(s) had life insurance?
A good place to start is to look through the places they kept their legal paperwork, to see if you can find the policy, or even a receipt that shows that they paid for a policy. If you cannot find it there, ask relatives if they recall your parents talking about purchasing life insurance. If you know the agency holding their home or auto insurance, or where they bank, you could contact them to ask if your parents ever took out life insurance through that institution. If all else fails, you can contact MIB.com or wait to see if it shows up in a couple of years as unclaimed property in their state.
5. How long does it take to collect life insurance money?
After the insured person dies, you will need to contact the life insurance company to file a death claim. They will send you a form that the beneficiary must complete and return with a certified death certificate. Sometimes the funeral home will take care of this for you. It takes a few days to a couple of months to get the check from the life insurance company.
6. What does Life Insurance cost? How do I go about buying Life Insurance?
Websites like ours that offers Instant Life Insurance Quotes can help take some of the anxiety out of buying life insurance. That is because you can enter the face amount and term length to see what a certain type of policy might cost for you. If it is too high, you just try a different face amount or term length. You even have the option to compare the price of a policy that requires an exam, to a policy that has no exam requirement.
Once you get a feel for how prices run, give us a call so that we can make sure you get the very best rate that fits your health. Permanent policies are hard to quote online, so calling is the best way to get Whole or Universal Life quotes. We often have other options up our sleeve, to help you save even more money.
After working with Outlook Life for over 11 years, I am amazed at how quickly my clients and I come up with a policy that works well for their needs, their health, and their budget. My long time Case Manager is so efficient and organized that we truly provide great service, and stick with you until the very end so that we don’t just quote you the best price, but help you get approved at the best price.
HAVE MORE LIFE INSURANCE QUESTIONS?
Call 866-866-0242 or email me at firstname.lastname@example.org and I would be happy to answer them for you.
Peg Mace, CEO, Outlook Life Inc