Although it’s often an uncomfortable topic to discuss, life insurance remains a great way to provide for your family and loved ones in the event of your death. But there are a number of different kinds of life insurance as well as relevant laws that may apply to your policy at some point. The article below provides an overview of common life insurance policies and laws.
Types of Life Insurance
As you start to plan for the future, it’s good to have an idea of the different life insurance policy options you can choose from. One decision entails whether you want an individual policy or a “second to die” policy (also known as survivorship life insurance). An individual policy insures just you, while a survivorship policy insures two people, like spouses. When the first person dies, the second continues the premium payments. When the second person dies, then the beneficiaries are paid from the policy. Some of the most common types of policies include the following:
Common State Life Insurance Laws
States vary in how they regulate the insurance industry, but some of the more common types of life insurance laws are listed below.
The Duties of a Life Insurance Company
Each state has its own insurance code that details the specific obligations of insurance companies. However, these companies are generally required to act in good faith and avoid unfair dealing. This includes investigating and paying proceeds within a reasonable timeframe, providing a written explanation for denied claims, and refraining from unfair settlement practices. If you’re dealing with an insurance company who’s acting in an unfair or deceptive manner, you may be able to file a bad faith lawsuit, or pursue a complaint with your state’s insurance commissioner.
Tax Law and Life Insurance Benefits
Tax laws regarding life insurance premiums and proceeds can be complex. Generally, though, premium payments are not deductible, and policy proceeds you receive as a beneficiary are not counted as gross income. However, some proceeds may be subject to an estate tax. For this reason, some estate planners recommend the irrevocable life insurance trust, which can provide the following benefits:
There are a number of ways to set up a life insurance policy with its tax implications in mind. Your individual circumstances and the current federal and state tax laws will dictate what makes the most sense for you.
Is Life Insurance Protected from Creditors?
The answer here again depends on the laws of your state. In some states, creditors can seize the cash value of a life insurance policy if you own it in your own name. In other states, some or all of the cash value and the death benefits are protected from creditors. This is another scenario in which you might set up a trust to protect your assets and the interests of your beneficiaries.
Get Legal Advice Regarding Your Life Insurance Policy
Depending on your situation, there are many different life insurance laws that could be important to you. Whether you’re thinking of setting up a life insurance policy, dealing with difficult life insurance company, or trying to manage a claim and the proceeds of a life insurance policy, you shouldn’t have to tackle all of the complexities on your own. Speak with an experienced insurance attorney who can help with your particular situation and advise you on how best to protect your assets and loved ones.