Life is a mystery.
Many unexpected events, both good and bad, can occur at any time of our lives. Unfortunately, we cannot predict those events, we can only prepare for the worst and hope for the best.
Life insurance is a contract between a person and a life insurance company that ensures that the beneficiaries named by the user will get paid by the insurer a certain amount of money (known as a death benefit and specified in the insurance policy) when the policyholder passes away.
A lot of people start a life insurance policy in order to provide some money for their loved ones in case something happens to them. This way, they can sleep peacefully, knowing that their family will not have financial problems and that they will not have to worry about money at such a sad time. Around 54% of American citizens have life insurance, but once you have bought a life insurance policy, you might start wondering how your family will receive the money, how they will be contacted, etc. Below, you can find some of the answers to those questions.
5 things about life insurance
1 How is life insurance paid out to beneficiaries?
There are some variations between different life insurance companies regarding payments, but usually you have two options. You can choose either
- a lump sum payment (which means that you receive the full payment all at once) or
- an annuity (which means that you receive the payment in increments over a specified period of time).
If you choose an annuity, the amount paid will be based on how old you are at the time you file the insurance claim and the sum of the death benefit. Then comes the question of how much time you have after the tragic event to go and claim the money. There is no deadline. If the money remains unclaimed for any reason, you can always go and claim it. There is no rush; you do not have to claim the money immediately after the person passes away.
2 Do beneficiaries pay taxes on life insurance payouts?
Generally, when a beneficiary of a life insurance policy receives a payout from the death benefit, the money is not considered taxable income. Put simply, the beneficiary doesn’t pay taxes on the payout from a life insurance policy.
3 Can you change the life insurance beneficiary?
Many people wonder whether they can change their life insurance beneficiary or beneficiaries. The answer is yes. You can change your beneficiary/beneficiaries at any time. However, in order to do this, a signature is required from the person who has the right to change the beneficiary.
There are two types of beneficiaries:
- revocable,
- irrevocable.
If your beneficiary is revocable, then the beneficiary can be changed by the owner of the policy without the signature of the beneficiary. However, if the beneficiary is irrevocable, then his or her signature is required in order to apply any changes to the policy.
While planning your life insurance, you have the freedom to choose whether you want your beneficiary to be revocable or irrevocable.
4 How do life insurance companies become aware of a client’s death?
This is one of the main problems about life insurance companies. They do not have a method or a system that notifies them when a policyholder passes away. Life insurance companies are usually notified of a death by the beneficiaries who were named by the deceased person. Which leads to two other huge problems.
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- If a policyholder has not told his beneficiaries about the life insurance, the beneficiaries have no way of knowing about the life insurance.
- If they do not know about the life insurance, they are not able to inform the company about the death and are not able to claim the death benefit.
You might wonder what happens to unclaimed benefits. After a certain period of time, unclaimed assets are turned over to the state in which the insured person was last known to have resided. In most states, the money is held safely until the owner is found or the money is claimed by the beneficiary/beneficiaries. Generally, there is no time limit on the death benefit. The beneficiaries do not have to claim the money immediately after the insured person has passed away. They do not have to worry about filing a claim too late or anything like that. No matter how long a death benefit remains unclaimed, the beneficiaries can still file a claim and receive the payment.
5 Do life insurance companies contact beneficiaries?
This is another big problem. Since the life insurance companies do not have a system that notifies them of the death of a policyholder, they do not contact the beneficiaries. It is usually the other way around. The beneficiaries contact the life insurance company and notify them about the death.
If you know that the deceased person has life insurance but you are not sure whether you are one of the beneficiaries, you can contact the life insurance company and ask them. There are a few cases when a life insurance company somehow finds out that one of the policyholders has passed away, without being informed by one of the named beneficiaries.
The solution to those problems is provided by the digital inheritance service DGLegacy. It allows a person to log important information about their financial and digital assets and designate beneficiaries, who will be proactively notified about these assets in the event of a fatal event happening to the owner.
Nowadays, we have the freedom to travel the world and decide in which country we want to live. Many people have lived in several countries during their lives and they have different types of assets in each country.
It is hard to keep a record of all the assets. In many families, the partner and the children do not know about half of those assets, let alone where they are kept, the passwords, and how to access them.
DGLegacy allows you to catalog all this information and everything that your family would need to be able to locate the assets and claim them. This way, you will sleep peacefully, knowing that if something were to happen to you, your family would not have financial problems.
