SUNDAY, MARCH 21, 2021
Term Life Insurance - Basics 101
Serving: Denver, Golden, Lakewood, Littleton, Arvada, Boulder, Morrison and Evergreen CO
There are several types of life insurance policies and different types suit different people's needs. But the most common, and widely sold is Term Life Insurance.
How Does a Life Insurance Policy Function
A life insurance policy is a legally binding contract between the insurance company and the policy owner. As long a the policy owner makes the required predefined monthly or annual payment,
the insurance promises to pay a predefined amount of money to the beneficiary should the person who's life is being insured, dies during that year. The policy owner is usually the 'insured person.
but this is not a requirement. The policy owner also gets to decide who the 'beneficiary' will be.
Four parties to a Life Insurance Contract
- Insurance Carrier
- The person who's life if being insured )Insured Person)
- The policy owner, and person responsible to make the annual payments (usually the person's life who is being insured)
- Beneficiary - The person who gets the proceeds
Why is it Called a Term Life Insurance Policy
A term life insurance policy is called 'term' because the contact is for a specific time period which is predefined on the original contact. After the term is over, the contract ends.
Guaranteed Renewability Rider
There are times at the end of the term when the Policy Owner wants to continue the life insurance past the end of term. There is a solution for this.
Sometimes you can endorse (or add) a clause to the policy called a 'guaranteed renewability rider'. This rider HAS TO BE ADDED TO THE POLICY AT INCEPTION. And this will allow the policy to continue to stay in force after the end of the stated term WITHOUT the Insured Personal having to their medical fitness again. In this scenario, the carrier can 'reset' the annual cost of the policy every year. If the policy owner, agrees to pay the new annual cost of the policy, the policy will convert to a year - to - year policy. And if the new annual premium is paid, the policy will stay in force .
Are Life Insurance Benefits Taxable Income to the Beneficiary
If monthly life insurance payments are made with 'after tax' dollars, the proceeds to the beneficiary are not taxable. Sometimes an employer will purchase the life insurance policy
for the employee as a benefit. But, if the company wrote off this payment as an expense on their corporate taxes, then the proceeds to the beneficiary would be taxed as income.
Life Insurance is less expensive than most people realize and term insurance insurance is the cheapest type of life insurance available. At Denver West Insurance Brokers, we have
licensed agents available to assist in providing a free, no obligation quote. Give us a call! We are happy to assist.
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