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Money Disbursement When A Term Life Insurance Policy Is Cashed In

2010-09-16

Term life insurance rates remain some of the lowest in the insurance industry owing to a number of factors. The first is that long-term policies, often begun when the purchaser is of a young age, and often stretching for 20 or more years have the benefit of using a "mortality table" system to calculate the potential that a client will die in the specified term period. At a young age, very few people are at a high risk, and therefore premiums and rates are lower. As well, there is no way to borrow or invest parts of term life insurance for investment in the same way that this can be done for whole life. The money paid out is the money paid out, simple as that. But how does that money reach a family after a policyholder has died? Often, many families are not sure how to go about cashing in a term life insurance policy or what they will be required to produce. Here are a few general guidelines for term life money disbursement.

First, understand that money will only be disbursed if a client died in a way that the insurance company will cover. Things like suicide or reckless deaths as a result of stunts or other high-mortality activities will not be covered unless a specific insurance policy has been purchased for them. If the death does fall within the purview of the coverage of the term life plan, the next step will be proving it. As callous as it may seem, a life insurance company cannot take a spouse's word that their wife, the client, has died. Term life insurance rates would skyrocket due to fraud in that case, and so companies will always require a death certificate in order to begin processing any money disbursement.

The disbursement itself usually has a time frame on it that the company must adhere to -- two weeks to a month is fairly standard -- and they are liable to fines by state agencies if they do not comply. Most policies pay out in one large lump sum directed to the bank account of the beneficiaries choice or in check form, and this money is typically not taxable. There is a caveat here, however, as term life insurance from a group life insurance plan as opposed to an individual one will likely be subject to tax.

While no one wants to be in the position of having to obtain disbursement of a life insurance policy for a loved one, it is often necessary to deal with funeral costs for the deceased and living costs for the family. Knowing what to expect is essential.

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