How does whole life insurance work?

[FrugalSaver]

I'm trying to make sure I'm understanding from the patchwork documents I've been able to look through thus far.

I'll call the insurance company tomorrow.

My understanding is a $100,000 policy was opened in April of 2010.  Payments were about $406 / month and about $18,000 has been paid into the policy.

We will be notifying the insurance company of the deceased tomorrow.  I believe, once all paperwork is submitted, etc, the beneficiary receives a check for $100,000.  I'm understanding there may be some dividends with this policy as well, although since only about $18,000 was paid in (he opened it at 59 so he would have had to have lived to about 84 to have paid $100,000 into the policy), that will likely be a very small amount, if any so hardly worth mentioning.

Is that basically the gist of it?

It's odd that unsecured debts (credit cards) don't have any access to this money, but that would seem to be why it's called unsecured debt.

[Goldielocks]

Yes, if the policy was active at the time of death, the beneficiary (estate or a named person) will get the full death benefit  of $100k as an insurance payout.

The beneficiary may have the choice to receive it as cash/check, annuity or another type of insurance product.  AND, it should get paid out fairly quickly once a death certificate is provided.

---- while still alive ----
The CSV  (Cash surrender value) only applies if it was redeemed prior to death, in which case the ACB (Actual cost basis, calculated as money added to it over the years minus the value of the mortality insurance and fees) would be used to figure out how much of CSV is taxed as income to the recipient, and what is just a return of your principal.

[Kakashi]

In essence, $100K will be paid out to the beneficiary upon notification and proof of death.  The policy may specify how it's paid out, which is usually an option, such as allowing you to specify an annuity payment.

If you are able to and choose the lump sum $100K payout, then that terminates the policy.  Hence "dividends" do not factor into the equation.  However, if you choose an annuity option, then "dividends" may factor in. 

Creditors can't access the money unless there is no named beneficiary (goes to estate) or the beneficiary is a spouse in a community property state. 

**this is just my own understanding, which may be incorrect

[FrugalSaver]

Thanks!

[retired?]

Look at whole life vs. term life.

Term life pays out the covered amount at time of death and has a defined period.

Whole, if I recall correctly, is often pushed as an investment vehicle by insurance companies.  At each of my employers, some base amount of whole life was provided, but they asked if you wanted to make monthly contributions.....which grow the benefit amount.

https://www.nerdwallet.com/blog/insurance/what-is-the-difference-between-term-whole-life-insurance/

If it is whole life and they paid above the minimum premium, then they will have built up a cash value.  Also, if it is whole life then they probably received occasional statements.  I doubt you will get screwed, but in any case the minimum is 100k and perhaps more.

[FrugalSaver]

Look at whole life vs. term life.

Term life pays out the covered amount at time of death and has a defined period.

Whole, if I recall correctly, is often pushed as an investment vehicle by insurance companies.  At each of my employers, some base amount of whole life was provided, but they asked if you wanted to make monthly contributions.....which grow the benefit amount.

https://www.nerdwallet.com/blog/insurance/what-is-the-difference-between-term-whole-life-insurance/

If it is whole life and they paid above the minimum premium, then they will have built up a cash value.  Also, if it is whole life then they probably received occasional statements.  I doubt you will get screwed, but in any case the minimum is 100k and perhaps more.

Thanks for the info.  That's what I've concluded as well from my research.  With today being a holiday most businesses were closed so I have a ton of phone calls to make tomorrow to get the final details.