subject: Essentials Of Life Insurance Payouts [print this page] When an insured individual passes away, the proceeds of the life insurance goes to the elected beneficiary of the policy. There is an array of means on how the death benefits can be collected from the insurance carrier. The selected recipient has the liberty to select the means of payment of the life insurance benefits. In 2009, it has been proclaimed that any proceeds accumulated by the recipient from the life insurance company are tax-free. However, in situations when the interest is paid to beneficiary, the money collected will be considered as taxable income.
Beneficiary
At the time the policy owner expires, the proceeds of the policy will be paid to the designated beneficiary of the insured. A beneficiary is an individual, group or organization that the insured has selected to collect the death benefits incorporated in the policy. The insured can decide that the proceeds of the policy directly go to his estate, which means the probate process would determine how it would be distributed.
Lump Sum
The beneficiary of the life insurance can merely opt to obtain the death benefits as a lump sum. Essentially, the total cash value of the policy will be paid to you on a tax-free basis. In case the policy owner loan from the cash value of the policy and was unable to repay it immediately, there can be a probability that the recipient would not get the full amount of cash value. At any rate, the amount of the outstanding loan would be taken away from the total amount of death benefit.
Installments
Aside from lump sum means of payment, the beneficiary of the life insurance policy may choose to collect the proceeds by means installment payments in their whole life. As the beneficiary goes for the life income option the insurer applies a formula that is anchored in the receivers age and the full amount of insurance benefits to calculate the monthly income. In a life income with a period certain, option, the designated receiver of the proceeds would not acquire monthly installments over a fixed period until the proceeds are exhausted.
Joint and Last Survivor Life Income
With this kind of payment system, the recipient appoints a secondary recipient or entity with which to break up the death benefits. In case the primary beneficiary dies, the secondary beneficiary can instantly act as the receiver of the life insurance benefits. The insurer will only cease from paying out the proceeds if the beneficiary dies or the entity or organization has been dissolve or when the life insurance benefits have been fully paid out.
Specific and Interest Income
Specific income option allows beneficiaries to select how the proceeds are disbursed. In case the recipient dies before the payouts are exhausted, the outstanding amount of proceeds would be given to a secondary beneficiary. Choosing "interest income" option implies that the beneficiary would accumulate only the interest on the cash value, with a secondary recipient collecting the payments upon the demise of the first.
by: Cindy McGrant
welcome to Insurances.net (https://www.insurances.net)
