Life Insurance Payouts: When And How To Claim Them

Life insurance is a contract between a policyholder and an insurance company that pays out a death benefit when the insured person passes away. The death benefit is the money – a lump sum or otherwise – that gets paid to your beneficiaries if you die while your life insurance policy is in effect. There are several kinds of life insurance, including term and permanent plans. The process of claiming life insurance after the death of a loved one involves planning a funeral, organizing their personal belongings and property, and sorting through their financial documents. The onus is usually on the beneficiaries to file a claim and receive a payout.

Who can be a beneficiary?

A beneficiary is the person or entity that you legally designate to receive the benefits from your financial products. In the case of life insurance, the beneficiary will receive the death benefit when the policyholder dies.

There are two types of beneficiaries: primary and contingent. A primary beneficiary is the person or entity first in line to receive the death benefit. Typically, this is a spouse, child, or other family member. If the primary beneficiary dies before the policyholder or simultaneously, the death benefit will go to the contingent beneficiary.

Almost anyone can be a life insurance beneficiary, including people, organisations, and trusts. Some common examples of life insurance beneficiaries are:

• A person, like a spouse
• Multiple people, like children
• A charitable organisation
• A legal entity, like a company

When choosing a beneficiary, it's important to be as specific as possible. While it may be tempting to write something generic like "my children", listing the name and Social Security number of each beneficiary will prevent confusion and speed up the payout process.

In most cases, you can change the beneficiary on your life insurance policy at any time. However, if you have designated an irrevocable beneficiary, you will need their consent to make any changes.

How to find out if you're a beneficiary

If you think you might be a beneficiary of a life insurance policy, there are several ways to find out.

In most cases, beneficiaries know they are beneficiaries because the policyholder tells them ahead of time. This is the ideal situation—a loved one who is still alive lets you know that you have been named their life insurance beneficiary and where to find the policy if they die while the policy is in force. If the loved one passes away, you know how to locate the policy and contact the insurance company to make a claim.

However, sometimes policyholders forget to tell their beneficiaries about the policy or the details—where they keep the paperwork, how much the policy is worth, and the name and contact information for the insurance company. In this case, there are still ways to find out if you are a beneficiary.

Firstly, ask other members of the family, if possible. Assuming you have the authority to do so, look through the policyholder's personal papers, check their computer and mobile phone, and look for the insurance policy itself. If you don’t find the policy, look for life insurance receipts or evidence of payments in a checkbook register. If you think your loved one may have been covered at work, contact that person’s former employer or labour union. If any of these searches turn up the name of the insurance company, that can sometimes be enough to start the claim process.

If you are still unable to find any information, you might want to contact the National Association of Insurance Commissioners (NAIC) for their free Life Insurance Policy Locator Service, which looks for policies on the databases of many insurance companies. Another resource could be your state’s Department of Insurance (DOI). Some states have DOI websites where you can put in information about the deceased and find out if they had insurance policies.

How to file a claim

The process of filing a claim on a life insurance policy is similar to filing for any other kind of insurance. Here is a step-by-step guide on how to do it:

Step 1: Contact the Insurance Company or Agent

The name of the insurance company will be clearly stated on the policy. If you remember the agent you worked with, ask for them specifically. They should be able to explain their process for filing a claim. If you are unable to find the policy but know the name of the insurance company, they should be able to track down the policy information once you provide certain information about yourself and the deceased.

Step 2: Get Copies of the Death Certificate

Make sure you get certified copies of the death certificate from the funeral director. You will need these to cancel subscriptions, close accounts, get access to financial accounts, file income taxes, and contact utility companies to turn off services. It is recommended to get at least 10 copies.

Step 3: Fill Out the Paperwork and Send It In

Most insurance companies make their forms available online. If not, call the insurance company or agent to find out what you need to do. They will probably ask you to send the death certificate in the mail with the paperwork.

Step 4: Choose Your Payout Type

You may have the option of receiving your payout as a lump sum (most common) or as a life insurance annuity, which would pay out regularly over a specified timeframe. If you're not sure what's right for you, talk with the insurer about your options and consult a financial advisor regarding the financial implications of the differing payout types.

Once you've completed the claim form, gathered all the required documentation, and decided on potential payout options, you can submit your claim to the insurer.

While it will vary by insurer, you'll most likely need to provide the following when making a life insurance claim:

• The insured's name, date of birth, date and cause of death, state of residence
• The insured's Social Security number and/or the policy number
• The insured’s original certified death certificate or a copy of the insured's certified death certificate

Depending on the type of policy, it can take as little as three to five days to receive a death benefit payment once you've filed a life insurance claim if you're a named beneficiary. In most cases, companies will pay out a life insurance claim a week or two after receiving the paperwork. However, there may be delays if the insured's death occurred during the policy's contestability period, or if there are any questions about the cause of death.

What documentation is needed

When filing a life insurance claim, you will need to provide the following documentation:

• The insured's name, date of birth, date and cause of death, and state of residence.
• The insured's Social Security number and/or the policy number on the life insurance policy.
• The insured's original certified death certificate or a copy of the insured's certified death certificate. You can obtain a certified copy of the death certificate through the county or the hospital or nursing home in which the decedent passed away. Alternatively, you can request a copy from the funeral home or the state's vital records office.
• Submitting a newspaper clipping of the insured's obituary is optional but may help speed up the process.

If there is more than one beneficiary, each person will need to fill out a claim form and submit the required documentation to be considered for their portion of the payout.

Reasons for denied claims

While it is rare for life insurance claims to be denied, it can still happen. Here are some of the most common reasons for denied claims:

Policy Delinquency

Policy delinquency occurs when a policyholder fails to pay their life insurance premiums on time, causing their coverage to lapse. If the policy has lapsed, the insurance company will deny the claim since no coverage was in force at the time of death. This is one of the most common reasons for denied claims.

Material Misrepresentation

When applying for a life insurance policy, it is crucial that the policyholder is honest and forthcoming about their medical history, health status, occupation, hobbies, and other life insurance policies. Lying on the application can jeopardize the entire policy and lead to a claim denial.

Contestable Circumstances

Contestable circumstances refer to deaths that fall outside the scope of coverage, typically because they occur within a contestability period (usually the first two to three years of the policy). During this period, insurers may deny claims for certain circumstances, such as suicide or illegal activity.

Documentation Failure

Documentation failure occurs when the necessary paperwork, such as a death certificate, is not provided to the insurance company. This can result in a delay or denial of the claim.

Excluded Causes of Death

Life insurance policies may not cover certain causes of death, such as death while committing a crime or engaging in excluded activities like aviation or military service. If the cause of death is excluded from the policy, the insurance company may deny the claim.

Fraud

Insurance fraud, such as lying on the application or concealing pertinent information, can also lead to a claim denial. Insurance companies have a right to investigate claims and may deny them if they find evidence of fraud or material misrepresentation.

Frequently asked questions