Inside Your Life Policy - Florida

Life insurance policies are legal contracts. Policies with cash values have a valuable section inside called “Non-forfeiture values”. These are choices within the life insurance contract. If the policy expires or lapses because of non-payment of premium, the insured may: (1) Surrender the policy for the cash value (2) Elect to receive a paid up policy for a reduced amount of life insurance (3) Elect to take no action and the policy will automatically become a Term Life plan for a certain number of years and days depending on the cash left in the policy. Never discard or destroy an old life insurance policy until a competent life insurance agent has checked it’s status. You may be throwing away cash!

Another important and useful section in most all life insurance contracts is labeled “Settlement Options”. When the insured dies a life insurance benefit will be paid. Settlement options offer choices of how the proceeds are to be paid. The insured may select a choice before death or the beneficiary may choose after the insured is deceased. Life insurance proceeds are normally income tax free to the beneficiary. The settlement options include five methods of paying out proceeds.

1. “Lump sum” cash payment.
2. “Interest only” when proceeds are left with the insurance company. This is normally only for a short time, giving the beneficiary time to make a decision about a permanent settlement option.
3. “Fixed Time Period” (example) The beneficiary receives a payment for 20 years. The insurance company calculates an annuity type payment to pay out all monies by the end of 20 years. Time period could be longer or shorter. The choice must be made before the first payment is made.
4. “Fixed Amount” This is a selection of a fixed dollar amount to receive until the monies are paid out. (example) $2000 per month until no dollars remain in the account)
5. Life Income or Annuity. Equal installments are paid to the beneficiary for life to protect the proceeds for the family in the event of an early death of the beneficiary. A choice can be made to include a guarantee of the payments continuing to a second beneficiary until all proceeds are paid.

Some people do not believe in life insurance. Maybe it is because they don’t understand the concept. Life insurance is to replace the earning power or human life value of a person if they experience premature death. In simple terms, it replaces a wage earner’s paycheck for the family if they die early in life.