What is the distinction of life insurance premium and proceeds?


To put it simply, life insurance premiums are what you pay to the life insurance company, while the proceeds are what the life insurance company pays to the insured or his beneficiaries as a result of a claimable event, such as the insured death.

That means that premiums cover the cost of the insurance. This amount is computed by the actuarial department of the insurance company. The computations take into consideration mortality, as well as expenses such as company overhead and agent's commissions.  And since the premiums are based on mortality tables, premiums will vary depending on your gender, age, health situation and whether you smoke or not.

The life insurance premiums are also dependent on the kind of policy being bought. If it's a term policy, the premiums will be lower, as compared to a whole life or return to premium policy.

The method of paying for your life insurance premiums may vary. You may pay your premiums as a single amount, or you may pay it in installments - annually, semi-annually, quarterly or monthly.

As for the life insurance proceeds, this amount is usually paid tax free, after the beneficiaries have provided sufficient proof as to the claim and proof of their identity as beneficiaries.

Depending on the life insurance product you buy, the proceeds may be paid due to the death of the insured, as well as a diagnosis of a critical illness on the part of the insured (this is when the policy includes a critical illness rider). For return to premium benefits, the treatment with regards to taxes may vary, so it is best to check with your CPA.

The life insurance company may pay the proceeds as an annuity (recurring payments over a period of time) or as a lump sum.

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