Orlando Harmon
Life insurance is a financial safety net for your family. It is a contract in which an insurance company promises a tax-free payment, known as the death benefit, to your beneficiaries when you die, in exchange for regular payments. The death benefit can be paid out as a lump sum or in monthly installments. Monthly benefit life insurance, also known as family income life insurance, is an optional add-on to your term life insurance policy that pays out the death benefit in monthly installments for a set period after you die, to replace the income you provided your family.
| Characteristics | Values |
|---|---|
| Purpose | Provide financial protection for your loved ones after you pass away |
| Payment | A tax-free payment to your beneficiaries when you die if you make regular payments |
| Payment Mode | Lump sum, specific income provision, lifetime income, interest income option, monthly payments |
| Beneficiaries | Family members, friends, charitable organizations |
| Riders | Waiver of premium rider, return-of-premium rider, accelerated death benefit rider, long-term care rider |
| Permanent Life Insurance | Lasts your entire life as long as premiums are kept up |
| Term Life Insurance | More cost-efficient, valid for a limited time, does not build cash value |
| Whole Life Insurance | Permanent, builds cash value |
| Universal Life Insurance | Permanent, builds cash value through credited interest and decreased insurance costs |
What You'll Learn
Monthly benefit payments vs. lump-sum payments
Life insurance is a contract in which an insurance company promises a tax-free payment to your beneficiaries when you die if you make regular payments. The primary purpose of any life insurance policy is to provide financial protection for your loved ones after you pass away. However, certain kinds of policies can also help you build wealth, with "cash value" that can be accessed while you're still alive.
The death benefit is the money your loved ones receive when you die. When submitting a life insurance claim, they can usually choose how they want to receive the money. Here are the two most common options:
Lump-sum payments
Lump-sum payments are the most common type of death benefit payout. This option allows the life insurance beneficiary to receive the entire death benefit at once. This can be used to pay off significant debts, support the beneficiaries as they grieve, and help contribute to long-term goals. Depending on the amount, a lump sum can be used to immediately pay off interest-bearing debts, such as a mortgage, car loan, or college tuition. The funds received in a lump-sum payout can also be invested. However, a large lump sum amount can feel overwhelming, especially when recipients are in the midst of grieving.
Monthly benefit payments
Monthly benefit payments, also known as income replacement, provide steady monthly tax-free payments to beneficiaries for a set number of years. This type of death benefit payout is guaranteed to last for a predetermined length of time, helping to avoid disruptions to finances. Monthly benefit payments allow loved ones to maintain their current lifestyle and cover regular expenses, such as bills and childcare costs. This option may be preferable if you are concerned about your beneficiaries' ability to manage a large sum of money.
Life Insurance Offering by BB&T: What You Need to Know
You may want to see also
Monthly benefit riders
Life insurance is a contract in which an insurance company promises a tax-free payment, known as a death benefit, to your beneficiaries when you die, in exchange for regular payments. The primary purpose of any life insurance policy is to provide financial protection for your loved ones after you pass away. However, life insurance can also provide "living benefits" – features and protections that can help you while you’re still alive.
While a family income rider is typically added to a term life insurance policy, family maintenance policies are usually whole life insurance policies. This means that if you have a family maintenance policy, your beneficiaries will receive coverage for their entire lives, whereas a family income policy rider will not pay out anything if you die after the term ends. It's important to note that a family income policy's death benefit must often be claimed within a certain time frame after your death, and there may be requirements or time constraints that your beneficiaries need to be aware of.
In addition to providing financial support to your beneficiaries, monthly benefit riders can also offer enhanced coverage options to meet your specific needs. For example, you may be able to add an additional layer of protection by covering another individual on your policy, such as your spouse or child. These riders are typically available for an additional cost, and it's important to check the specific terms and conditions as they may vary by product, state, or jurisdiction.
Term Life Insurance: Understanding the Basics of Coverage
You may want to see also
Permanent life insurance
One of the key benefits of permanent life insurance is its ability to accumulate cash value over time. The premiums paid into the policy contribute to a cash account that grows on a tax-deferred basis. This means that policyholders do not have to pay taxes on the gains until they withdraw them, allowing for more efficient accumulation. The cash value can be accessed and used while the policyholder is still alive, providing a source of funds for various financial needs. Additionally, permanent life insurance policies typically offer more riders and customization options to cater to different life stages and scenarios.
There are different types of permanent life insurance policies, including whole life insurance and universal life insurance. Whole life insurance offers consistent coverage and premiums that do not change over time, regardless of age and health. It provides guaranteed growth at a fixed interest rate and may include dividends that boost cash value growth. Universal life insurance, on the other hand, offers flexibility in premium payments and allows for adjustments over time. Variable universal life insurance provides even more flexibility in managing the cash value, allowing investment in sub-accounts tied to the market for potentially higher growth.
Understanding Life Insurance Trust: Gross Income Explained
You may want to see also
Term life insurance
If a policyholder's needs change, they may be able to convert their term life policy to a permanent or whole life insurance policy, which lasts the policyholder's entire life and accrues cash value that can be withdrawn.
Life Insurance Approval: How Long Does it Take?
You may want to see also
Living benefits
Life insurance is a contract in which an insurance company promises a tax-free payment to your beneficiaries when you die, provided you make regular payments. The primary purpose of any life insurance policy is to provide financial protection for your loved ones after your death. However, life insurance can also provide "living benefits", which are features and protections that can help you while you're still alive.
There are two primary types of life insurance coverage: term life insurance and permanent life insurance. Term life insurance is a more cost-efficient way to get a given dollar amount of protection. However, a term life policy (and its payout) only lasts for a limited time, typically 10 to 30 years, and does not build cash value. Permanent life insurance, on the other hand, lasts your entire life as long as premiums are kept up.
Permanent life insurance consists of two types: whole life and universal life. Cash value grows in a whole life policy through dividends declared annually by the company's board of directors and is not guaranteed. Cash value grows in a universal life policy through credited interest and decreased insurance costs. The cash value of both policy types benefits when the policyholder pays an amount above the required premium.
Whole Life Insurance: Understanding Employee Benefits and Coverage
You may want to see also
Frequently asked questions
Life insurance is a contract in which an insurance company promises a tax-free payment to your beneficiaries when you die if you make regular payments.
A monthly benefit life insurance policy, also known as a family income life insurance policy, pays the insurance proceeds to your beneficiaries in monthly installments for a set period after you die, rather than in one lump sum.
A monthly benefit life insurance policy distributes the death benefit to your beneficiaries in monthly installments for a set period after you die. The monthly payment from a family income rider is paid in addition to the lump-sum death benefit of your policy.
A monthly benefit life insurance policy is beneficial if a one-time payment would be stressful for your loved ones to manage and they will need very little financial support in the final years of your policy.
Term life insurance is a more cost-efficient way to get a given dollar amount of protection. However, a term life policy (and its payout) only lasts for a limited time – typically 10 to 30 years – and does not build cash value. Permanent life insurance, on the other hand, lasts your entire life as long as premiums are kept up and can build cash value.
