Do You Have To Pay Off Your Life Insurance Before It’s Payable To Your Family?
Posted December 20, 2009 – 10:20 am in: structured settlements FAQI have life insurance, but I wanted to know if my family will only receive the amount that I have paid to date?
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Life insurance is a unilateral contract of adhesion. If you pay as agreed, the entire death benefit less any withdrawals/loans from cash value will be paid. You stop paying and lapse the policy, you get nothing. The unilateral part (you) is what keeps the contract in place.
Generally no, although whole life policies are a little different than term policies.
In a term policy, the face value of the policy is what is paid out if you die. For example, if you have been paying $100 a month for the last five years for a $25,000 term life policy and you die, then your family gets $25,000 even though you have only paid in $6,000. If after 10 years, you don’t want the policy any more, you stop paying the $100 a month, and if you die the next year, your family gets nothing.
On the other hand, if you paid that same $100 a month for 25 years (and paid total premiums of $30,000) your family still gets the same $25,000.
Term life insurance is somewhat like car insurance. You pay a lower premium, hope nothing bad happens, and if it doesn’t, eventually the need for the insurance ends and you stop making payments.
In whole life insurance, your premiums build up some cash value, which you can take a loan against. Say you pay $6,000 in premiums toward a death benefit of $25,000. But, along the way, you needed some cash, and borrowed $3,000 against the policy. When you die, the $3,000 loan will be repaid before the death benefit is paid out. Whole life insurance is much more expensive than term.
If you are young, and in reasonably good health, term insurance is a better fit to provide security for your family.
You can pay the first month and then die and the family would (normally) receive the full amount. Life insurance is ’self-completing.’
No. If you die while the policy is active, they get the full amount, minus any loans you may have taken against the cash value.
No, that is not the way life insurance works.