Life insurance benefits-how are they paid?

[Jennifer]

How are life insuranace benefits paid? A lump sum? A monthly or yearly check? Are taxes withheld? Does an insurance company pay creditors first before the beneficiaries?

Thanks!

Jennifer

[melissel]

I'm so afraid to ask why you need the answers to these questions :001_huh:

[m0mmaBuck]

When DSS's mom died, he received a check in the full amount. Taxes only applied to the amount that was considered "investment" (some policies are attached to the market). The beneficiaries are expected to take care of the creditors on their own. HTH.

[Jennifer]

I'm so afraid to ask why you need the answers to these questions :001_huh:

 

Didn't mean to scare you! DH and I are doing a yearly financial assessment and I just didn't know how life insurance works.

 

Thanks!

Jennifer

[Jennifer]

When DSS's mom died, he received a check in the full amount. Taxes only applied to the amount that was considered "investment" (some policies are attached to the market). The beneficiaries are expected to take care of the creditors on their own. HTH.

 

Thanks. So the amount is not account as income for that year?

[melissel]

Didn't mean to scare you! DH and I are doing a yearly financial assessment and I just didn't know how life insurance works.

 

Thanks!

Jennifer

 

:lol: No, I figured. The questions without context sounded so ominous, like you were planning to bump someone off :D I kind of assumed you were not really though!

 

According to DH, who sold life insurance for awhile, MommaBuck's experience is correct. And no, under normal circumstances, it is not taxable.

[littlebug42]

I also just wanted to mention that when my FIL and Dad died, we gave the life insurance policies to the funeral home and the funeral home took care of notification etc. The funeral home got their expenses and we got the rest. This way we did not have to pay anything to the funeral home up front.

[NoPlaceLikeHome]

I have read of many life insurance companies that try to get survivors to use a checkbook from the life insurance company to use as they need it instead of a lump sum which is solely meant to benefit the life insurance company and not the survivors:glare:

 

It is recommended that survivors take the lump sum and invest it as they see fit instead of letting the insurance company benefit from the investment of the money. One could just write a check for the full amount but the life insurance companies don't want you to know this from what I read.

[phathui5]

When dh's dad died, he received a check for the whole amount and told his dad's creditors that they weren't getting any money. Turns out life insurance is something that creditors can't go after.

[prairiewindmomma]

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Edited November 10, 2021 by prairiewindmomma

[Unicorn.]

Thanks. So the amount is not account as income for that year?

 

Not unless it was set up as some kind of an annuity, and the deceased was using it as in investment. But generally, no. Not income.

[The Girls' Mom]

I have read of many life insurance companies that try to get survivors to use a checkbook from the life insurance company to use as they need it instead of a lump sum which is solely meant to benefit the life insurance company and not the survivors:glare:

 

It is recommended that survivors take the lump sum and invest it as they see fit instead of letting the insurance company benefit from the investment of the money. One could just write a check for the full amount but the life insurance companies don't want you to know this from what I read.

 

My stepdad's policy was like this. We just requested a lump sum withdrawl and called it done.

 

No, you aren't taxed if it's below a certain amount.

[Jennifer]

When my daughter died, we had to wait for the paperwork to come through (death certificate) so that we could file our claim. It took about 4 weeks to get the death certificate processed by the state. Our claim paperwork was several pages long. Once that was mailed in, the claim took about 3 more weeks to process. They also "offered" to give us a checkbook---the pp was correct, taking a lump sum is much better.

 

I'm so sorry to hear that you lost a daughter. Can I ask how old she was when she died? Our insurance guy is offering a "child rider" for our policies-it would pay a small sum ($3-5000) if a child died, enough to pay funeral expenses.

 

Thanks for all the other replies!

 

Jennifer

[Murphy101]

Didn't mean to scare you! DH and I are doing a yearly financial assessment and I just didn't know how life insurance works.

 

Thanks!

Jennifer

 

Actually, this is exactly what you should know before you even bother to sign a policy. Having a policy does many no good bc they don't even know what it is or how it works or how to access it. And many make very costly mistakes while learning those answers at a time when they might not be thinking their best to begin with.

 

When dh's dad died, he received a check for the whole amount and told his dad's creditors that they weren't getting any money. Turns out life insurance is something that creditors can't go after.

 

GOOD for him! That was the intent of the policy being given to your dh. If his dad had wanted a policy to pay creditors, he could have purchased a different policy.

 

I also wouldn't EVER sign over the policy to a funeral home (or anyone else for that matter) And that's about the nicest thing I have to say about them.:tongue_smilie:

[Lara in Colo]

With regards to childrens policies:

 

I have them on my children and here is the reason why. I once knew someone who became II diabetic (at 16) and could NEVER get life ins. So his wife and chidren weren't able to be protected. When DD2 was born, she was tested for the genes for diabeties and she has one (I think she has a 1/15 chance of becoming type 2)

At the rate of 13.50/month/child, which should be paid off by the time they are 20yrs, they each have 50 grand of perm whole life, which should continue to grow (the payoff) so that by the time they have children of their own, they have a substantial amount for their families.

 

So I am a fan of children having life ins.

 

Lara

[SonshineLearner]

How are life insuranace benefits paid? A lump sum? A monthly or yearly check? Are taxes withheld? Does an insurance company pay creditors first before the beneficiaries?

Thanks!

Jennifer

 

This is sounding bad :( Hopefully :D

[littlebug42]

With regards to childrens policies:

 

I have them on my children and here is the reason why. I once knew someone who became II diabetic (at 16) and could NEVER get life ins. So his wife and chidren weren't able to be protected. When DD2 was born, she was tested for the genes for diabeties and she has one (I think she has a 1/15 chance of becoming type 2)

At the rate of 13.50/month/child, which should be paid off by the time they are 20yrs, they each have 50 grand of perm whole life, which should continue to grow (the payoff) so that by the time they have children of their own, they have a substantial amount for their families.

 

So I am a fan of children having life ins.

 

Lara

 

I have policies on my children. When I worked for the Housing Authority, I will never forget helping this young woman whose child had been killed by another child in the extended family (who actually killed several children in the family over a period of time). She had since had another child and carried life insurance on that child as she said she couldn't bear not having the money to bury her first child. I have carried her story with me along with life insurance policies for my children.

[plansrme]

I want to clear up a couple of things that previous posters have hinted at:

 

1. True life insurance proceeds are not taxable income to the recipient, regardless of the amount. There are probably some funky life insurance-like products out there for which this is not true because they are more like investment products, but run-of-the-mill life insurance is not taxable. If it is employer -provided life insurance, the premiums on amounts over $50,000 are taxable to the employee when they are paid (someone above referred to "above a certain amount"--I presume this is what she was thinking of), but the proceeds still would not be. If you have questions about the taxation of your proceeds, consult the information that came with the policy. It should be correct on this point.

 

2. Creditors can get to your life insurance proceeds if the estate is the beneficiary. If the beneficiary is a living person, the proceeds go directly to that person. That said, in some states, the spouse of a deceased is liable for the deceased's funeral expenses and medical bills. In such a case, the preferred creditors might be able to attach the proceeds before they are paid to the spouse or, in any event, would be able to go after them once they get to the spouse. That is going to depend upon the state, though.

 

Terri

[Guest DeniseM]

It depends on the payout option selected by the beneficiary. It could either be paid as a lump sum or in monthly installments. Most beneficiaries prefer having the death benefits paid to them in lump sum.

Taxation would also depend on the type of payout selected. If the death benefits are paid out in a lump sum, they are not subjected to income tax. If life insurance death benefits are paid out in installments, then the interest accrued is taxable.



Denise