All Life Insurance Tips

Does the owner of a whole life insurance policy have to die prematurely for the policy to pay out?

Hi. I'm trying to learn more about how life insurance works...basically, I know nothing at this point. So, lets say the father in a family has a whole life insurance policy for like $2 million. What will his family receive if he dies prematurely? What would they receive if he died of natural causes when the children have grown up? Thank you!

Public Comments

1. He dies beneficiaries get 2 million. Not to difficult to understand Does not matter when
2. As long as the policy is in force, the full $2 million should pay regardless of age at death. There are some exclusions, such as suicide typically being excluded for the first two years. You'd have to consult the actual policy to be sure of any exclusionary endorsements. Also, if the insured reaches age 100 (or 121 for some newer policies) then the policy is considered matured and will pay the full cash value, which should be equal to or greater than the death benefit. Those are general insurance practices, but each individual policy may differ. Hope this helps.
3. The life insurance policy will pay $2 million, the death benefit, to your beneficiaries when the insured deceases or when the insured reaches age 100 - which is an arbitrary terminal value actuaries use to determine max age. The biggest difference between a whole and term life policy is the cash value. You'll pay more for a whole because only a fraction of it is used to cover your death benefit (in this case $2 mil). The rest behaves like a savings vehicle where the underwriter (the company you have the contract with) pays you a yield on your cash value. However, unlike a saving account, the cash value cannot be withdrawn but merely borrowed against. Term policy is like car insurance; you pay to insurance against an unlikely event but if the unlikely event doesn't happen, you don't get anything back. On a $2mil whole life, your cash value can grow to a big amount in 10-20 years. Depending on the details of the policy, at some point in the future, the cash value can be borrowed against to cover your policy premium. Hope this helps. I used to hold an insurance license in NY.
4. It depends on the policy. Some permanent life insurance plans have a set face amount and they do not increase over time. Some increase as the cash value inside the policy increases. 2 examples both being a $2 million dollar policy. The first policy has a level death benefit. It is 10 years old and has $100,000 in cash. The insured dies and the family is paid $2 million dollars and the policy is over. The second policy has a variable or increasing death benefit. It also is 10 years old and has $100,000 in cash value. The insured dies and the family is paid $2,100,000 and the policy is over. The second policy seems better since you get the death benefit and the cash in the policy. If both policies are exactly the same except for this feature the second policy will be more expensive because it pays out the death benefit and the cash. The first policy only pays the dealth benefit and they keep the cash. Not all policies offer this feature so you have to ask if it is available. Also, you can take cash out of a whole life insurance policy before you die. You can take out what you paid in tax free and any additional amount can be withdrawn and you pay taxes or you can loan it out and pay interest on it until you pay it back. Most people take a loan because the interest on the loan is way lower than any tax liability you face. You can withdraw up to the amount of cash available in the policy at that time.
5. Go to Yahoo Finance, click "Personal Finance" and read the section on life insurance. It explains how whole life and term life differ.
6. Most whole life policies pay out the full death benefit to the beneficiaries regardless of when death occurs. Some are age 100 or death, whichever is first, or something similar also. The only thing that would affect the amount received is if he took some cash value out of the policy and decided not to pay it back, then it would reduce the death benefit by that amount
7. When the owner purchases a policy, he has to name beneficiaries and what percentage each beneficiary is to receive.
8. No, the insured person has to die. The policy owner is not necessarily the insured person. If the policy is a $2MM policy, that's how much they pay out. It doesn't matter how old the children are, or what the cause of death is.
9. If the owner dies no one gets anything. Money only gets paid out if the "insured" dies.