25:["$","$L26",null,{"category":"$27","relatedArticles":[{"id":"cG9zdDoyMTQwMDM=","databaseId":214003,"postId":214003,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1417,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$28","date":"2023-09-27T10:37:12","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyMTQwMDQ=","databaseId":214004,"altText":"A couple trying to figure out how their life insurance dividend income will be taxed.","date":"2023-09-15T03:50:02","fileSize":56882,"mimeType":"image/jpeg","modified":"2023-09-15T03:50:25","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2023/09/senior-couple-having-a-consultation-with-a-financial-advisor-at-home.jpg_s1024x1024wisk20cuCFhdSQaiNf-aSqmQ_DPMmP3jjfv9ZkhzOlgBvvOm20.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-9-27","readable":"September 27, 2023"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":{"expertise":"Financial Planning, Retirement Planning, Investment Planning, Tax Planning","__typename":"User_Additionalmeta"},"email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":38,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"aconde","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":{"url":"https://secure.gravatar.com/avatar/5ae1da874ddac2010e70c7b0a0def3f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. 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Here is what to know if you're receiving these dividends.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":5,"title":"How Is Life Insurance Policyholder Dividend Income Taxed?","__typename":"PostTypeSEO"},"slug":"how-is-life-insurance-policyholder-dividend-income-taxed","status":"publish","title":"How Is Life Insurance Policyholder Dividend Income Taxed?","uri":"/life-insurance/how-is-life-insurance-policyholder-dividend-income-taxed","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":null,"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":"$29","description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. 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Life insurance policy dividends are returns on premiums that a policyholder receives from the insurance company when it has surplus earnings. As a general rule, life insurance policy dividends are not taxable as these are considered as return of premium. This means that policyholders can receive dividends without worrying about an added tax burden. However, there are certain circumstances where taxes may apply, which we will explore in the following sections. Consulting a financial advisor can help provide a deeper understanding of these exceptions and their potential tax implications.

","

What Is a Life Insurance Dividend?

","

A life insurance dividend is considered a return of a portion of the premiums paid by the policyholder over the past year. They are typically paid on participating policies, which are policies eligible to receive a share of the insurer’s surplus earnings. These dividends are generated when the insurance company’s investments perform well, expenses are lower than expected or the insurer experiences fewer death claims than projected.

","

Essentially, life insurance dividends are a reflection of the insurance company’s financial performance. If the company does well, policyholders benefit through dividends. Visualizing this relationship would reveal that as the insurer’s performance improves, policyholders receive larger dividends.

","

Are Life Insurance Dividends Taxable?

","

It’s important to note that life insurance dividends are generally not taxable. They are perceived as a return of a portion of the premiums you pay, which come out of the insurer’s profits. Though situations where taxes apply do exist, these aren’t the norm and typically involve dividends exceeding paid premiums as highlighted earlier.

","

To illustrate this topic, let’s consider the case of John, a policyholder of a life insurance policy. Throughout the year, John has paid $20,000 in premiums. At the end of the year, his life insurance company declares dividends of $21,000, and John is entitled to a significant portion of it. Though most of these dividends are return of premium and are not taxed, if John’s share exceeds the total amount of premiums he paid ($20,000), the excess would normally be subject to tax.

","

Types of Life Insurance That Receive Dividends

","

","

Different types of life insurance policies can become eligible for dividends. The primary types include:

","

Whole life insurance: This insurance policy not only provides guaranteed lifelong coverage, but it also has a cash value function that can grow over time.
Universal life insurance: Another permanent insurance type that can earn dividends, offers flexible premiums and a potential increase in value over time.
Variable life insurance: A type of permanent life insurance where the policyholder can invest the cash value into various investment options. This type of policy offers the potential for higher returns but also comes with more risk due to the investment component.

","

Choosing one of these policies depends entirely on the unique, individual circumstances of the policyholder.

","

Options to Receive Your Dividend

","

As a policyholder, you have several options on how to receive your dividends. These include receiving them as a cash payment, leaving them with the insurance company to earn interest, using them to purchase additional life insurance, repaying a policy loan or reducing future premium payments. Each of these options can impact your financial situation in different ways. Let’s take a closer look at each.

","$3a","

Bottom Line

","

Understanding life insurance policy dividends and their tax implications is crucial in managing your policy effectively. This comprehension not only equips you with the knowledge to optimize the potential tax advantages but also enhances your ability to make informed decisions. Consulting a financial advisor can help you navigate this complex landscape and benefit from a more robust financial management.

","

Tips for Estate Planning

","$3b","

Photo credit: ©iStock.com/FG Trade, ©iStock.com/PeopleImages, ©iStock.com/PeopleImages

"],"experts":null,"link":"/life-insurance/how-is-life-insurance-policyholder-dividend-income-taxed","published":{"datetime":"2023-9-27","readable":"September 27, 2023"},"shareInfo":{"title":"How Is Life Insurance Policyholder Dividend Income Taxed?","origin":"/life-insurance/how-is-life-insurance-policyholder-dividend-income-taxed"},"isNewsArticle":false},{"id":"cG9zdDo0OTUxOQ==","databaseId":49519,"postId":49519,"author":{"node":{"id":"dXNlcjozNg==","databaseId":36,"userId":36,"avatar":{"url":"https://secure.gravatar.com/avatar/3fcc8f52927cda0578c60fb1d67604f5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Elizabeth","fullName":"Liz Smith","lastName":"Smith","name":"Liz Smith","postCount":{"pageInfo":{"offsetPagination":{"total":102,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"esmith","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$3c","date":"2016-06-15T10:00:39","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxODk4ODA=","databaseId":189880,"altText":"How Trusts Work","date":"2023-03-08T02:02:17","fileSize":49514,"mimeType":"image/jpeg","modified":"2023-03-08T02:02:17","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2016/06/trust-1-1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-3-8","readable":"March 8, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/how-trusts-work","metaDesc":"Trusts are legal agreements that set rules for how someone's assets will be passed on to their heirs. They can offer certain advantages like tax benefits...","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":4,"title":"How Trusts Work - SmartAsset","__typename":"PostTypeSEO"},"slug":"how-trusts-work","status":"publish","title":"How Trusts Work","uri":"/life-insurance/how-trusts-work","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjozNg==","databaseId":36,"userId":36,"avatar":"$3d","description":"Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.","additionalMeta":"$3e","email":null,"firstName":"Elizabeth","fullName":"Liz Smith","lastName":"Smith","name":"Liz Smith","postCount":"$3f","slug":"liz-smith","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$42","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

You’ve probably heard of a trust – the magical inheritance that only an elite few are entitled to. But the truth is, a trust is a financial tool that can benefit anyone who wants control over how they leave their estate to their heirs. It’s a set of legal documents that give beneficiaries ownership of different assets, including cash investments and life insurance policies. If you’re considering setting up a trust then you may want to first work with a financial advisor to get all of your questions answered.

","

The Basics of a Trust

","

Trusts help individuals decide who will get a portion of their assets. They provide guidelines for how those assets should be passed on and can help individuals avoid the costs that go along with probating a will or going through the courts to transfer wealth.

","

The original owner of the assets within a trust is called the trustor or the grantor. The trustee is the person who’s responsible for making sure that the trustor’s wishes are carried out according to their instructions. The person or people who receive the assets are known as beneficiaries.

","

The specifics of setting up a trust will depend on the state you do it in. The mechanics of a trust in Louisiana or New Mexico may be different from in Maryland or South Carolina.

","

Types of Trusts

","

","

While there are many different types of trusts, they generally fall into two different categories: testamentary trusts and living trusts. A living trust is established during someone’s lifetime. A testamentary trust is written into someone’s will and is only established following the trustor’s death.

","

Living trusts can be revocable trusts or irrevocable trusts. Revocable living trusts let grantors retain control of their assets and make changes at any time. Irrevocable living trusts, on the other hand, become binding agreements once they’re executed and they can only be altered when the beneficiaries want to make adjustments to the terms and conditions.

","

Other types of trusts offer specific tax benefits. For example, generation-skipping trusts (or dynasty trusts), make it easy for trustors to pass tax-free money to grandchildren and other beneficiaries who are at least two generations below them. Once the value of the assets in their will exceeds the estate-tax exemption, a trustor with a credit shelter trust can pass the rest of their wealth on to their spouse tax-free.

","

Other Estate Planning Options

","

","

If you’re not interested in getting trust, there are other ways to bequeath your assets to your loved ones. While your assets could be taxed more heavily, setting up a will is often cheaper than setting up a trust. If you want your beneficiaries to use your assets to fund their education, you can put them in a 529 savings plan or a custodial account.

","

If you can’t afford to set up a living trust, you can also consider getting something called a Kiss Trust. It’s an inexpensive alternative to the traditional trust and the minimum initial deposit is relatively low. You can decide how the funds in the trust will be invested and multiple people can contribute to a trust for a particular beneficiary.

","

The Bottom Line

","

Proper planning can make setting up a trust a very valuable tool for your situation. Before you set up a trust, it’s a good idea to make sure that it can meet your needs. It’s also important to become familiar with your state’s trust-related laws. A financial expert and an estate planning attorney can make sure that your trusts are properly structured and your assets are protected.

","

Tips for Starting a Trust

","$44","

Photo credit: ©iStock.com/Katie_Martynova, ©iStock.com/kupicoo, ©iStock.com/Kali Nine LLC

"],"experts":null,"link":"/life-insurance/how-trusts-work","published":{"datetime":"2016-6-15","readable":"June 15, 2016"},"shareInfo":{"title":"How Trusts Work","origin":"/life-insurance/how-trusts-work"},"isNewsArticle":false},{"id":"cG9zdDoxNzIyNjg=","databaseId":172268,"postId":172268,"author":{"node":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":776,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$45","date":"2022-09-30T16:38:40","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxNzIyNjk=","databaseId":172269,"altText":"do you need life insurance","date":"2022-11-08T17:34:18","fileSize":42262,"mimeType":"image/jpeg","modified":"2022-11-08T17:34:18","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2022/09/youre-doing-great-with-your-savings-picture-id1181416318.jpg","__typename":"MediaItem"},"modified":{"datetime":"2023-3-21","readable":"March 21, 2023"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/who-needs-to-buy-life-insurance","metaDesc":"Life insurance protects your beneficiaries, financially, in the event that something happens to you. Here is who should consider buying life insurance.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":4,"title":"Who Needs to Buy Life Insurance? - SmartAsset","__typename":"PostTypeSEO"},"slug":"who-needs-to-buy-life-insurance","status":"publish","title":"Who Needs to Buy Life Insurance?","uri":"/life-insurance/who-needs-to-buy-life-insurance","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":"$46","description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":"$47","email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":"$48","slug":"mark-henricks","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$4b","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

Life insurance helps protects family members and others against the financial impact of the policyholder’s death. While many people don’t have life insurance, it can be a good idea for many others looking to protect their family’s future. Primary earners with families, especially minor children and non-working spouses are among the best life insurance candidates, for example. Those with sizable debts or who wish to leave a financial legacy by supporting charities may also have good reasons to buy life insurance. To help you with all your insurance and financial decisions, talk to a financial advisor.

","

Life Insurance Ownership Basics

","

A life insurance policy is a contract obligating an insurance company, in exchange for a premium, to pay money upon the death of the policyholder. The payment of the benefit helps protects family members and others against the financial impact of the policyholder’s death.

","

Life insurance can be a boon to survivors and others, but not everyone has or needs life insurance. Just over half of American adults own any kind of life insurance coverage, according to the 2021 Insurance Barometer study published by LIMRA, a life insurance industry marketing organization.

","

Next time LIMRA does its annual survey, it may reveal that most American adults have no life insurance coverage. life insurance ownership rates have been declining for decades, with no end in sight. As recently as 2011, the figure was 63%. In 1989, 77% of American adults had life insurance coverage.

","

The decline in life insurance ownership is likely due in large part to shifting social, economic and demographic trends. However, despite the sweeping changes in American life in recent decades that have reduced life insurance ownership, reasons to purchase life insurance endure.

","

Top Reasons for Buying Life Insurance

","

","

The main reason people buy life insurance, according to a 2015 LIMRA survey, is to pay for funeral expenses. The idea is that the proceeds from the life insurance will cover burial costs so that surviving family members will not have to be burdened by the outlay. This reason is cited by a slight majority of life insurance buyers, a 2015 LIMRA said.

","

The next most important is to cover lost income. Just over a third of respondents to the survey said they bought policies with the express intent that the death benefits would be used to replace income lost if the policyholder died, allowing survivors to maintain their living standard.

","

Paying off debt, specifically mortgages, is the next most important reason. More than a quarter of policyholders who reporting being swayed by this argument for a life insurance plan for the death benefit to be used to pay off debts when they die. This can be particularly helpful in the case of someone whose spouse has co-signed loans. It can also protect an estate against attempts by creditors to collect money owed to them from the assets in the estate. In the event of a spouse or child with existing student loan debt, it can also be used to rid survivors of that burden.

","

Transferring wealth to the next generation is next among the top reasons for buying life insurance. Life insurance benefits can be used to pay inheritance taxes on large estates, increasing the after-tax amount remaining to be distributed among heirs. Like a will, the provisions of a life insurance policy can precisely specify which heirs will receive benefits and how much each will get.

","

Other Life Insurance Concerns

","

There are many different types of life insurance, and the varieties can have a number of uses. Life insurance can also be used as a way to create a post-death legacy. By purchasing life insurance and designating a charity as a beneficiary, a policyholder can provide important financial support to valued causes.

","

Business partners are among the most likely to benefit from having a life insurance policy. Many partnership agreements lay out terms of a buy-sell agreement calling for one partner to buy out the other’s share if the other partner dies. Funds to pay for the buyout can be provided by an insurance policy paid for by the company.

","

The Bottom Line

","

","

Life insurance exists to provide financial support to loved ones and others in the event of the policyholder’s death. Those who can best use life insurance include those with minor dependents, those with significant debt, those who want to plan to minimize estate taxes, those in business with partners and those who want to leave a legacy by supporting favored charities.

","

Tips for Getting Life Insurance

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Think all life insurance applications involve comprehensive medical exams? They don’t. If you’re worried that your health or lifestyle could bar you from life insurance coverage, read on to learn more about exam-free options. We’ll break down what it means, as well as how it impacts what you’ll pay and who might want to consider these […]

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Find out now: How much life insurance do I need?

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No-Exam Life Insurance: The Basics

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No-exam life insurance is also known as simplified life insurance or nonmedical issue life insurance. Cancer patients, cancer survivors, heavy lifelong smokers or the obese might all have given up on the idea of getting life insurance coverage. Ordinarily it would be tough for anyone with serious health risks to get life insurance coverage, but simplified coverage is the life insurance industry’s way of saying “Don’t ask, don’t tell.”

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With simplified life insurance, you won’t be made to give blood or urine samples, but you’ll pay for the privilege of secrecy. While there’s no medical exam involved, you will have to answer some questions about your personal and family medical history.

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The No-Exam Premium

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The good news is that life insurance without a medical exam requirement is available. The bad news is that it’s generally more expensive. When someone applies for, say, a 20-year term life insurance policy, the life insurance company really doesn’t want that person to die within the 20-year term. The more likely the applicant is to die, the more the insurance company will charge in premiums, to offset the risk that the applicant will die and trigger a big payout.

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If you apply for a no-exam life insurance policy, the insurance company interprets that application as a signal from you that you might not pass a medical exam. That makes them think that you’re a high-risk applicant, and they’ll charge you accordingly.

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Get life insurance quotes.

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Not for the Healthy

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No matter how much you dislike undergoing medical exams, you shouldn’t opt for no-exam life insurance if you’re in good health. The insurance company will assume that anyone who applies for no-exam insurance must have a health condition to hide – and charge you higher premiums.

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Plus, even if you don’t undergo an exam you’ll still have to answer questions about your family medical history. You could get charged extra based on your dad’s diabetes, even if you follow a strict no-sugar diet. If you’re in good health, why not reap the rewards? It can be a good idea to apply for life insurance that requires a medical exam, and when it’s over you’ll likely have lower premiums to show for your trouble.

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If you have a very healthy lifestyle, you may even be eligible for preferential premium rates. Why pay more expensive premiums when you could be paying discounted ones?

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Check out our 401(k) calculator.

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The Need for Speed

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So far we’ve talked about the added cost that’s typically associated with no-exam life insurance. But there is one big advantage to simplified life insurance, and it could be as useful to the healthy as to the sick: speed. Simplified life insurance offers much faster underwriting, so if you need life insurance right away then no-exam life insurance could be your best bet. You won’t need to wait for weeks to schedule an exam, or for your blood test results to come through. You could get coverage as quickly as 24 hours after you apply.

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Why would someone need life insurance in such a hurry? Sometimes, judges order divorcing parents to buy life insurance to secure a child support obligation. Sometimes, people find themselves with a new mortgage or a new baby and no life insurance to protect their spouse from financial liability. In any of these cases, it’s a good idea to secure life insurance coverage ASAP.

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Bottom Line

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There are many life insurance companies that offer no-exam policies. The catch? These policies come with a cap on coverage. Without knowing the details of your health, life insurance companies aren’t willing to insure you for huge sums. So while a person could get over a million dollars in coverage from a regular life insurance policy, that same person might only be eligible for $250,000 in coverage from a simplified life insurance policy. In rare cases, you could get life insurance with no medical exam and no health questions. Those policies usually have even lower caps on coverage.

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If you’re drawn to the idea of no-exam life insurance because you think submitting to a life insurance medical exam will be too inconvenient, remember that most life insurance companies can send a paramedical professional to your home or office to complete the brief exam. You can work with the insurance company to find a time that fits your schedule.

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Still not sure if you should go with a no-exam policy or take your chances on a medical exam and blood test? The next time you visit your primary care physician, consider asking your doctor to give a general assessment of your health. He or she might be able to tell you if you would pass a life insurance medical exam.

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But before you start down the road to coverage, it’s a good idea to make sure you need life insurance in the first place. SmartAsset is here to help.

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