Life insurance has many nuances that can be worth considering as you search for the right policy. Here are four things you may not have known.
Published: 2022-11-29 08:58 am
4 surprising things about life insurance
Life insurance has many nuances that can be worth considering as you search for the right policy. Getty Images

Many people generally understand that life insurance can provide payouts to your family or other beneficiaries when you pass away, but there are many nuances.

Not only are there differences in the types of insurance policies, such as whole vs. term life insurance, but there are many details you may not have known that could make these policies a better fit for your finances than you realized. 

If you're considering life insurance then start with a free online price quote so you know exactly what to expect. 

Surprising things about life insurance you may not have known

Below we'll examine four lesser-known things about life insurance that you should consider before deciding whether to purchase a policy:

You can get a policy without having to take a medical exam

While getting the best rates on life insurance typically requires taking a medical exam, you don't always have to do so to qualify for coverage. Some policies let you quickly qualify online by answering a few basic questions, and some offer guaranteed coverage if you meet a waiting period of a few years to make claims.

If you have health issues or wouldn't qualify for some policies based on age, then a no-medical exam life insurance policy could be your ticket to life insurance protection.

You may be able to access your policy for cash

Term life insurance provides coverage in case you pass away during a set number of years, while permanent life insurance, such as whole life or universal life, can cover you for as many years as you ultimately live. As part of this permanent coverage, you can build a cash value.

That's because with permanent life insurance policies you generally pay higher premiums than term, with some of the money going toward a death benefit and some of the money accumulating a cash value. You can then potentially borrow against that cash value, use it to pay premiums, or withdraw some or all of the cash.

Depending on the specifics of your policy, you might reduce your death benefit or surrender your coverage by withdrawing the cash, but it's an option that some people like to have.

Are you interested in a policy that you can access for cash? Start by getting a free online price estimate or use the table below to compare providers.

You can often customize coverage with riders

When purchasing life insurance, you can add life insurance riders to customize your coverage. That way you can build a policy that better aligns with factors like your risk tolerance and coverage preferences. 

For example, you might add a critical illness rider that lets you access some of your death benefit early if you end up getting diagnosed with a critical illness down the road.

Other types of riders could be used such as to cover your monthly payments for premiums in case you can't work for a given period due to a disability. Or, you might use a rider that increases a payout due to accidental death.

There are many types of life insurance riders to consider, so don't assume that the standard terms of a policy are the only ones you can access.

You can pass on money to heirs that doesn't count toward income taxes

Another potential benefit of life insurance is that if your beneficiaries make claims, they could receive money from the policy without having to pay income taxes on that payout.

However, life insurance payouts count toward the value of your overall estate, so if you have significant wealth (the exclusion goes up to $12.92 million for individuals for 2023), a life insurance policy payout could trigger estate taxes. Also, interest payments from life insurance policies are taxable.

That said, with careful financial planning, life insurance could be used in conjunction with a tax management strategy that maximizes the amount of money you pass on to your family or other beneficiaries.

The bottom line

Given the variety and complexity of insurance, it's good to arm yourself with life insurance information like this before making any decisions. 

As you dive into these types of lesser-known details, along with looking at the specifics of prospective policies from different insurance companies, you can better weigh if the potential benefits of insurance policies outweigh the costs, based on factors like your health, financial circumstances, and risk tolerance. 

Speak with a life insurance expert now who can help you find a plan that works best for you.

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