Life is complicated, insurance doesn't have to be.
Read time: 4 minutes
We know life insurance isn’t an easy topic to discuss. And if
you’re reading this while trying to navigate the life insurance policy
of a loved one who has passed away, you have our deepest sympathy.
To make things easier, we talked with our associates from our
Auto-Owners Life Insurance Company to answer your FAQ surrounding how
life insurance works. We hope it makes things a little easier for you.
How does life insurance work?
Essentially, you pay for a life insurance policy, and
when you die, that policy will pay the designated individuals or
organizations (beneficiaries) the dollar amount specified (the
death benefit) within the provisions of your policy.
The death benefit, for a personal policy, is often used by
surviving family members to help cover funeral expenses, pay off debts
and help replace lost income. Depending on how the policy was set up,
the funds may also help pay for a dependent’s education and other
legacy planning priorities specified in their trust.
Some important variables to consider when choosing a life
insurance policy include:
Depending on your life stage, certain types of coverage may
be more appealing to you. So, explore the options out there, which
include three types of coverage:
Read more: Whole
Life Insurance vs. Term: What You Need to Know
How does life insurance work upon death?
After the person that is insured under the life insurance
policy dies, a family member, or designated administrator, needs to
call in a claim to the insurance agent or insurance company. They
will likely need a copy of the death certificate and the life
insurance policy number.
Once the claim is submitted, the designated individuals or
entities can generally expect to hear back from the insurance
company within a day or so with further instruction. Once the funds
are distributed, they can use the money to cover funeral expenses,
pay off debts, help replace income and other needs they may have.
If the deceased person wanted certain funds set aside for
specific needs, they may have designated their trust as the
beneficiary of their policy. In this situation, their trust will
provide instructions on how the funds are to be used and you will
need to refer to those documents to allocate the funds as specified.
Does life insurance actually pay?
Yes! Our life insurance associates are passionate about
helping families during difficult times.
Of course, there are situations when a life insurance policy
may not pay the beneficiaries, which may include, but are not
Review the policy carefully for full payout limitations and conditions.
Read more: How Much Life
Insurance Do I Need? [Free Calculator]
How long do you pay life insurance before it pays out?
Short answer: it depends on your policy.
Some life insurance policies allow you to choose how long you
“pay in” to your policy. For our whole life insurance policies, we
offer Ten Pay and Single Pay options, which allow you to pay a
specified number of payments to pay the policy in full, quicker.
So, let’s look at an example.
just turned 50 and decided he needs a life insurance policy. He
purchases an Auto-Owners $100,000 Ten Pay whole life policy at
preferred rates, and has a monthly premium of about $367.22. *
Since he chose a Ten Pay policy, he will pay his monthly
premium ($367.22) for 10 years. That equates to 120 payments (12
monthly payments x 10 years = 120 payments).
After he makes his monthly payments for 10 years, he’s done
and his policy is considered “paid up.” This means he will have
the $100,000 death benefit available for his beneficiaries upon
his death (up to age 110) and will no longer be billed for it.
Term life insurance policies are similar in that you pay for
the term your policy provides you coverage, which is typically 10,
20 or 30 years. These payments tend to be smaller than the Ten Pay
and Single Pay options, since you are getting coverage for a shorter
specified period of time and making payments on the policy for the
entire term. Please note: If the person covered by the term
life policy lives past the coverage period, the policy will not pay
out the death benefit since it’s past the term.
Can I cash in my life insurance before I die?
Certain life insurance policies build a cash value. Permanent
life insurance policies, like our whole life and universal life
insurance policies, offer this but term life insurance policies
don’t. As you make payments on your whole life or universal life
insurance policy, part of your payment goes toward building your
cash value. For whole life policies, your cash value builds
at a guaranteed interest rate that is assigned when you purchase
You can withdraw the cash value or take a loan against your
policy's cash value to pay for college, a house, etc., while the
policy is still in force. Both of these options will decrease the lump
sum your beneficiary receives. With the loan option, you will be
charged interest on the loan. Other charges may also apply when
withdrawing policy cash value.
The cash value is really supposed to function as a legacy
planning account, not a personal loan, but it can be used that way
Read more: Is
Life Insurance Taxable? Here’s What You Need to Know
Auto-Owners Whole Life
policies and our Universal
Life policies offer the ability to build cash value.
Additionally, our universal life products, Perma Term® 2 and Perma
Term® 3, offer you the ability to structure the policy as a permanent
coverage or as a term!
Each of these products have their own eligibility
requirements, coverages and rates, so talk to your agent about what
may work best for you.
We are passionate about helping you provide for your family’s
future. We know it’s not an easy topic to discuss, which is why we’re
here to help you navigate it. If you have questions about an existing
life insurance policy or are interested in finding a policy, contact your local
independent Auto-Owners insurance agent.
Copyright Auto-Owners Insurance Company © 2022. All Rights Reserved.
*Products referenced may not be
approved/available in all states. Limitations and conditions may
apply. Premium will be based on benefits chosen and policy rates
available at time of application.
Disclaimer: This article is not expert advice. The
analysis of coverage is in general terms and is superseded
in all respects by the Insuring Agreements, Endorsements,
Exclusions, Terms and Conditions of the Policy. Some of the
coverage mentioned in this material may not be applicable in
all states or may have to be modified to conform to
applicable state law. Some coverages may have been
eliminated or modified since the publishing of this
material. Discounts may not be available in all states.
Limitations and conditions may apply. Premiums will be based on
benefits chosen. Please check with your local Independent
Auto-Owners Insurance Agent for details."