The Principal Sum, also known as the Death Benefit, is the amount of money paid to the beneficiary of a life insurance policy upon the death of the insured. This is the amount agreed upon by the insured and the insurance company at the time the policy is issued.
For example, if the insured has a life insurance policy with a Principal Sum of $500,000, then the beneficiary will receive $500,000 upon the insured's death. The key features of Principal Sum (Death Benefit) in insurance are:
• Agreed amount: The Principal Sum is the agreed-upon amount between the insured and the insurance company at the time the policy is issued.
• Payment: The Principal Sum is paid to the beneficiary upon the death of the insured.
• Tax-free: The Principal Sum is typically paid out tax-free to the beneficiary.
• Policy cost: The cost of the insurance policy is typically based on the Principal Sum, with higher sums resulting in higher premiums.
• Flexibility: The Principal Sum can often be adjusted over time to accommodate changing needs or circumstances.
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