Life Insurance Benefits You Might Not Know About

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Most people know the general parameters of how life insurance works and who it helps. In exchange for a monthly premium (often discounted if paid annually) to a provider, the insured secures a financial safety net for their loved ones in the event of their death. Coverage amounts range significantly from tens of thousands of dollars to more than $1 million.

The advantages of life insurance are typically clear and the costs for millions of Americans are often negligible. You may already even have a plan provided to you as part of your employer-provided health benefits package.

But there are some perks of life insurance that you may not have known about. Buried in the fine print of an application, there are multiple ways to utilize a life insurance plan besides just letting it sit idle for times of emergency. These benefits can help you both while you’re alive and in the event of your death.

If you don’t have life insurance currently then start by getting a free price quote so you know exactly what to expect.

Here are three life insurance benefits you may not have known about:

Most policyholders are used to paying for insurance protections that they never wind up needing. But the money you use to pay your life insurance premium doesn’t necessarily need to go to waste. By adding a “return of premium” rider to your policy you can have the payments you made returned back to you if you wind up outliving your pre-determined term.
This rider – which comes with an extra cost – may be particularly helpful for applicants who only need life insurance for a set time period (for example: until their children are grown or until college payments are completed). In this case, they can rest assured knowing that the payments will not have been made in vain.

There are many different types of life insurance policies available. The most well-known are whole and term. The latter, however, comes with a desirable cash reserve that can actually be accessed by the insured while they’re still alive. That cash can then be used to pay down debt, make household repairs or pretty much anything else the policyholder wants.

Just understand that any amount withdrawn will then be deducted from the final payout to beneficiaries and loved ones. And, because of this cash option (and because the policy lasts for the duration of the insured’s life versus a set term), whole life insurance costs more than a term policy does.

Many people are so used to paying taxes on what they buy and what they earn that they automatically assume they will need to do the same for any life insurance payouts. However, that’s not always the case. For term life insurance policies, in particular, you won’t need to report anything to the Internal Revenue Service (IRS). “Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren’t includable in gross income and you don’t have to report them,” the IRS explains online.

But since whole life insurance policies have the cash factor (and interest may accrue), a payout there may first be taxed. “However, any interest you receive is taxable and you should report it as interest received,” the IRS says.
In short: if you have a term life insurance policy don’t worry about taxes. Your beneficiaries will walk away with the figure you’ve already secured for them.

Life insurance is a multi-faceted form of financial protection. Accordingly, there are perks and benefits you should be aware of to truly take advantage of your policy. So don’t automatically assume your payments each month are wasted (you can get them returned with a special rider). And you can use your policy as a backup cash reserve while you’re alive. Finally, unless you have a whole life insurance policy that’s accrued interest, your loved ones won’t have to pay taxes on the final payout amount.