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What is a Payable on Death Account?

What is a Payable on Death Account?

Life insurance, and payable on death accounts, are the two methods that can be used by a person in order to safeguard the financial interests of his near and dear ones, in case of his death.
Scholasticus K
From a theoretical point of view, any asset that is handed down by a testator to his beneficiary, is treated as a payable on death or a POD account. Many people make their own will, and name their beneficiaries in them. Such an act ensures that after a person passes away, his beneficiaries receive the right to use the assets that are left behind by him.

Different Types
When we deal with the laws and procedures pertaining to pay on death accounts, there are 3 main domains that have to be taken into consideration, namely:
  • Life insurance policies
  • Wills and testaments
  • Payable on death bank accounts
Life insurance policies are probably the most favored type of POD accounts, in which an insurance policy is generated by the insurer and the insured person. In accordance with the provisions of the policy, the insured person pays premium to the insurance company for a certain period of time. After that time has elapsed, the insured person has two options, he can either renew the policy, or he can consider it to be matured. During this time period, if the insured person passes away, the nominees who have been named in the agreement of the policy are entitled to receive a specified sum of money every year. It must be noted that the sum of money is substantial, and the concept of yearly installment, instead of a lump sum payment is used, in order to ensure low tax liability.

A will is an official statement of lawful recognition, that helps the people to pass on assets such as houses, cars, family heirlooms, and jewelry, to their beneficiaries in a lawful manner. There are, however, tax implications of such accounts. In the absence of a will, the first blood relatives (or lawfully adopted first relations) are entitled to receive the assets in equal proportions.

Some incorporated financial institutions that have public accountancy within their memorandums and compliance, are also authorized to accept deposits for POD accounts. Many banks have such a facility that allows the user to deposit money, that becomes payable to the named beneficiaries upon the account holder's death. The rate of interest on such accounts is variable, and is in accordance with the national economic interest rate index. Such indexes are prescribed by governmental bodies, such as the central bank.

How to Open a POD Account?
If you are considering opening a payable on death account, then the best choice is a life insurance policy. However, a drawback of such a policy is that, you will have to pay a fixed sum of money to the company on an annual basis. The process of writing a will is another option, which is very straightforward and simple. But once you have the will ready, you will have to make it official with the help of your lawyer, who can also act as a custodian or a trustee, if the need arises. A POD account that is held with a financial institution is also easy to open, and the procedure is as simple as opening a conventional bank account.

Choosing the right account is totally up to you, and it must be noted that each type of POD account mentioned above is foolproof and safe.