If you have a life insurance policy or are interested in getting one, then you may be wondering how the life insurance payout works in Ontario. The payout is there to ensure that the beneficiaries have the financial support they need after the policyholder passes away.
Here at Buckler Insurance, we’ll put your mind at rest with any payout questions that you may have. We’ll look at how they are calculated, what affects the payout and the options for how it gets distributed. All you need to do is read on to find out more!
Life Insurance Payout Canada: An Overview
With life insurance payouts in Ontario, also known as death benefits, the beneficiaries of the policy will get a lump sum of money after the insured individual dies. This payout would have been agreed in the terms of the policy when it was signed.
There are many reasons why this payout can be important. Not only can it help with the loss of income but it can also help to pay off expenses, such as a mortgage, and also cover any funeral expenses.
How are Life Insurance Payouts Calculated?
The average life insurance payout Canada is around $200,000 but the exact insurance payout on your policy is going to depend on a few different factors, including the type of policy held. There are two main types of life insurance, which are:
Term Life Insurance – Term life insurance will cover you for a specific period, such as 10 or 30 years. If you die during the term, then the agreed payout will be made. If the policy outlives the term, then no payout would be made.
Permanent Life Insurance – This covers you for the entirety of your life and a payout is guaranteed. However, there is often a savings component of this policy which can be withdrawn so the exact payout a beneficiary would receive can change over time.
Factors Affecting the Payout Amount
There are several factors that go into the insurance payout someone would receive. Some of these factors are agreed on at the start of the policy whereas others can affect it over time. Let’s see what they are.
Coverage Amount – The biggest factor will simply be how much coverage was agreed upon in the policy once it was signed. This is often a pre-determined amount which is intended to cover the beneficiary’s needs.
Premium Payments – If you struggle to make timely payments during the course of your policy then it may affect or even invalidate and intended payout.
Cash Value – Some people decide to withdraw the cash value of their policies whereas others leave it alone. If this savings amount has remained untouched, then the payout amount will be higher.
Policy Type – As mentioned, if you had a term policy which has expired and not been renewed, then no payout will be given.
Additional Riders – Policyholders may opt for additional riders, such as accidental death benefits or critical illness coverage, which can increase the payout amount under specific circumstances.
Options for Receiving the Payout
There are a few different options for how a payout can be received. These can either be requested by the policyholder or the beneficiary may decide on a different type of payout based on one of these options:
Lump Sum – By far the most common option is to receive all the money owed straight away. This can help to pay off a mortgage, cover financial expenses, or anything else the beneficiary chooses.
Annuity – This is where you get the money over a series of payments, such as yearly. Many people like this as it gives them a steady income and allows them to budget for the future.
Trust – A beneficiary or policyholder may want to place the money into a trust. This can be to have greater control over how the funds are distributed to ensure they are used responsibly.
Importance of Proper Beneficiary Designation
As a policyholder, you need to make sure that the money will be going to the right place. If there is any uncertainty, then it’s possible that the payout may be contested which could end up in a legal battle with your loved ones.
Along with putting the right beneficiary down, it’s also important to review it. Obvious examples of why this is important would be naming a spouse and then getting divorced, or naming your children and forgetting to update it after the birth of a child.
The Claims Process
When the policyholder passes away, it’s up to the beneficiaries to initiate the life insurance claim process. Due to this, it’s important to not only notify the relevant people that they are beneficiaries but also notify them where any documents are kept.
Often they will need to provide documentation such as the death certificate and complete a claim form. The insurance company will then review the claim and release the payout in the manner requested.
They need to contact the insurance company, provide the necessary documentation, such as the death certificate, and complete any required claim forms. The insurance company will then evaluate the claim and, once approved, release the payout to the designated beneficiaries.
Many ask how long does a life insurance payout take? The answer can vary but if there is no delay in the documentation and no other legal issues, the payment will usually be made within 30 days. Often it will be even quicker than that.
Is a life insurance payout taxable? Usually not. In Ontario, life insurance payouts are generally tax-free for the beneficiaries so this isn’t something your loved ones will need to worry about. There are rare exceptions to this, such as if an estate is named as the beneficiary, but the insurance company will often advise on this.
Conclusion
Life insurance payouts in Ontario provide essential financial support to loved ones during difficult times. Hopefully here we have given you a clear understanding of how these payouts work, the average life insurance payout after death, and the various factors affecting payouts.
If you need a life insurance policy or have any further questions regarding payouts in Ontario, then contact Buckler Insurance today to see how we can help you and your family.
