Life insurance is designed to compensate your loved ones in case of your passing, so most policies only payout once the policyholder passes away. The insurer must usually be provided with a proof of death, such as a death certificate. Most life insurance policies provide a lump sump payment for the beneficiaries listed on the policy.
This is true for both term and whole life insurance policies, although there are some differences between the two.
Payment for Whole Life vs Term Life Insurance Policies
At their base, term and whole life insurance policies are different because of the length of time they are meant to cover. Term life insurance policies only cover a certain amount of years as chosen by the policyholder (such as 10, 20 or 30 years) while a whole life insurance policy lasts until it is cancelled or the policyholder dies. There is another difference when it comes to payouts, however.
With a term life insurance policy, you cannot withdraw money while the policy is active. Benefits from this policy will only be paid if the policyholder dies while the policy is active. If the policy is canceled, or the policyholder dies after the term policy’s limit runs out, compensation will not be paid.
Whole life insurance policies operate a little differently. Some whole life insurance policies, also known as permanent life insurance policies, allow the policyholder to withdraw small amounts of cash from their policy while it is active. This is called a cash-value withdrawal and is typically not taxed.
For most policies, the insurer may have 30 days after a claim to investigate and approve the claim. At the end of this period, benefits may be paid to the surviving beneficiaries.
You should not take money out of your life insurance policy without consideration, however. Withdrawing money can reduce the amount of benefits that can be paid at the end of the policy. As with term life insurance, a whole life insurance that is canceled before the policyholder dies will usually not provide benefits to any beneficiaries listed on the policy. Unless, however, it is a cash-value policy. A cash-value policy may allow you to receive cash value from the money accumulated once you cancel or “surrender” the policy.
Take careful consideration before withdrawing money or canceling an insurance policy. A lack of coverage can leave your beneficiaries without compensation after your passing.
Call us today at (915) 599-2900 or visit www.MtFranklin.com to see how we can help you.
