How Life Insurance Works

How much do you know about life insurance?* Understanding how your policy works and the steps your beneficiaries will need to take to claim the policy proceeds should be a priority. Your insurance professional can help you select the coverage that best meets your needs.

Term or Perm?

There are two basic types of life insurance. Term life provides coverage for a fixed period or up to a specific age. If you die during the policy’s term, your beneficiaries receive a death benefit payout. A term policy has no cash value, and the death benefit doesn’t change over time. Term insurance is generally the least expensive option. Permanent life doesn’t expire if you continue to pay the premiums. The policy builds cash value, typically from investments.

Your Options

You can choose the amount of the death benefit; the larger the benefit, the higher the premiums.

You can also name one or more beneficiaries to receive the policy’s proceeds when you die. The beneficiary can be a person or an organization, such as a charity.

Payouts and Riders

Some permanent policies offer another type of payout known as a living benefit, which is money the policyholder collects from the policy while living. You may be able to withdraw or borrow money or pay the premiums from the policy’s cash value. You can also add a rider to some policies that allow you to access part of the death benefit to help pay bills if you’re terminally ill. However, any payout you receive can reduce the death benefit for your beneficiaries.

Collecting Benefits

Your beneficiary should contact the insurance company and submit a claims form with the policy number, Social Security number, and a copy of the death certificate to receive the payout. Payout options include a lump sum, installments over time, or a delayed payment while making a payout decision.

*Applications for life insurance are subject to underwriting. Insurance coverage exists only if a policy is issued and the required premium to put it in force is paid. Accessing cash values may result in surrender fees and charges and, may require additional premium payments to maintain coverage, and will reduce the death benefit and policy values. Guarantees are based on the claims-paying ability of the issuer.