Can I Cash in my Life Insurance?

The simple answer to this question is no.

Life insurance is not designed to serve as a form of investment. Rather, it provides a cushion for your dependents should you pass away and therefore you’re no longer able to take care of them.

Here, we’ll share everything you need to know about life insurance including how this policy works, the different types of life covers, and the payout process.

Let’s dive in!

How does life insurance work? 

Life insurance aims to provide your loved ones with a cash payout in the event of your passing away. You are required to make periodical payments (usually monthly) known as premiums. The amount of payout released to your dependents depends on the level of cover you take as well as the type of policy as we’ll discuss below.

Different types of life insurance policies

Life insurance policies come in different forms, each serving different purposes and having varying coverage periods. A common factor though, is that all these policies pay out when the insured passes away. 

The most popular life insurance type is the level term cover. It protects the insureds for a fixed duration and only pays out when you pass while the policy is still valid. 

The whole of life insurance is yet another popular type of coverage. Unlike level term insurance, this policy provides protection for the rest of the insured’s life.

Other little-known types include the over 50s life insurance, family income benefit and non-medically underwritten life covers. The latter provides life coverage to people aged between 50 and 80 years without answering any medical questions or undertaking a medical examination. 

Do you have dependents who will find it challenging to cope without your income should anything tragic happen to you? If so, that’s an indication that you need to take out a life cover. And here’s a little open secret; the younger you get covered, the less costly it will be. This is because at a young age, you’re considered less of a risk which means you pay lower premiums.

How does level term insurance pay out?

Like the whole of life cover, the payout of a level term policy remains the same regardless of whether the policyholder passes away within the first or final year of coverage. However, if the insured passes after the elapse of the coverage period, no payout is granted.

As a policyholder, you can choose where you’d like the proceeds to be directed after you’re gone. One way of doing this is by writing the policy in trust. Here, you’ll choose a trustee that will receive and manage the proceeds on your beneficiaries’ behalf. 

The other option is getting the payout directed to your estate. Adopting this approach means that the proceeds are subjected to distribution to the right recipients per the dictates of your will. If you never wrote a will during your lifetime, then the rules of intestacy will guide the estate distribution process.

How to utilize a lump sum payout?

A life insurance policy pay-out can come in handy to mitigate multiple circumstances. For starters, if your loved ones were solely dependent on your income, the lump sum amount can help them meet daily expenses and maintain a normal lifestyle. Also, a policy like decreasing life insurance can rescue your family from getting evicted from your home, in case you hadn’t completed repaying your repayment mortgage. 

In essence, a life insurance cover relieves your family of any distress by taking care of critical financial obligations. From covering or contributing to the funeral expenses, settling medical bills, to paying school fees, you can’t get enough of life insurance benefits. 

How to speed up the claiming process

When it comes to claiming life insurance, there is a clear-cut procedure that your dependents must abide by to speed up the process.

If you indicated in your policy that the pay-out be directed to a trust, the claiming process tends to be much simpler since the funds won’t have to pass through probate. Instead, the money goes straight to the trust.

However, it’s worth noting that each insurer will have different guidelines for the claiming process. As such, it’s important to check with them beforehand to see how long it takes, and perhaps how to hasten or smoothen the process.

Do you have any questions or concerns that you’d like us to address regarding life insurance? Let us know in the comments below!