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LIFE, ACCIDENT & HEALTH INSURANCE:
LIFE INSURANCE F.A.Q.
Why would I need life
insurance?
Are there tax consequences of owning life insurance?
Can I have multiple beneficiaries?
Can I name a charity as my beneficiary?
Why would I need life insurance?
- To replace income upon the death of a family wage earner.
- To pay mortgages, loans and debts.
- To fund your children’s education.
- To provide an emergency fund.
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Are there tax consequences of owning
life insurance?
There are many tax issues to consider when purchasing and counting on
life insurance. Talk to your accountant for more information.
- Life insurance premium payments are not tax-deductible
expenses.
- In general, the death benefit paid to the beneficiary
is not included in gross income for federal income tax purposes because
it is paid with after-tax dollars.
- You must be very careful about who owns the policy and
who the beneficiaries are in order to avoid estate taxes on the proceeds
when you die.
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Can I have multiple beneficiaries?
Yes. You may name multiple beneficiaries if you choose. There are no legal
restrictions and few company restrictions on the number of beneficiaries
you can designate. The only requirement is that they must all have an
insurable interest in you (e.g., spouse, child, business partner, etc.)
at the time you apply for the insurance.
If you name multiple beneficiaries, you must also specify
how much each beneficiary will receive. You may not want to give each
beneficiary an equal share, so you must state how the proceeds should
be divided. Because of the numerous interest and dividend adjustments
the insurance company must make, the death benefit check often does not
equal the policy's face value. Thus, it's wise to distribute percentage
shares to your beneficiaries, or to designate one beneficiary to receive
any leftover balance.
Don't name a minor unless a guardian
has been appointed or a trust is used.
Insurers generally will not make settlements directly to minors. Do not
name a minor as a beneficiary unless you also appoint a guardian or use
a trust.
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Can I name a charity as my beneficiary?
Yes. Life insurance can be an excellent tool for charitable giving. Not
only does life insurance allow you to make a substantial gift to charity
at relatively little cost to you, but you and the charity may benefit
from tax rules that apply to gifts of life insurance.
Advantages to giving life insurance to charity:
- Life insurance allows you to make a much larger gift to
charity than you might normally be able to give.
- The charity is guaranteed to receive the proceeds of the
policy when you die.
- Giving life insurance to charity has certain income tax
benefits.
- Giving life insurance to charity has certain estate tax
benefits.
Ways to give life insurance to charity:
- Name a charity as beneficiary on your life insurance policy.
- Name a charity as the recipient of dividends.
- Donate an existing life insurance policy to charity.
- Donate a new life insurance policy to charity.
- Use a life insurance policy to fund a charitable
remainder trust.
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