Jeffrey Wade
Life insurance is a contract where a policyholder pays monthly or yearly premiums, and, in exchange, the insurer promises to pay a death benefit to the policyholder's beneficiaries. The death benefit can be used for many purposes, such as replacing lost income, paying off debts, funding children's education, and saving for emergencies. When it comes to receiving a death benefit after a family member or significant other dies, many people are unprepared to collect. This is because policyholders may forget to notify loved ones of their beneficiary status. As a result, beneficiaries may not realize they're entitled to claim a death benefit payout after the policyholder passes away.
There are two main types of life insurance beneficiaries: primary and contingent. The primary beneficiary is the person or entity that's entitled to the death benefit. The contingent beneficiary will receive the payout if the primary beneficiary passes away before the policyholder or can't be located.
| Characteristics | Values |
|---|---|
| How to find out if you are a beneficiary | Talk to the policyholder if they are still alive; look through financial documents; contact the life insurance company; use a life insurance policy locator; check with the policyholder's state |
| How to find out if someone else is a beneficiary | Ask other family members; look for the insurance policy or evidence of payments in checkbooks or digital storage; contact the person's employer; use a life insurance policy locator; check with the person's state |
| How to file a claim | Contact the insurance company; gather documentation (e.g. death certificate, ID documents, policy documentation, claim form); submit the claim |
| How to choose a beneficiary | Can be a person, charity, trust, or your estate; can be revocable or irrevocable; can be primary or contingent |
| How to change a beneficiary | Contact your employer, financial professional, or financial services company; request the change with your life insurance company |
What You'll Learn
The policyholder informs beneficiaries ahead of time
The policyholder informing beneficiaries ahead of time is the ideal scenario, as it means the beneficiaries know they are beneficiaries and can locate the policy and contact the insurance company to make a claim when the time comes.
If you are a policyholder, it is important to keep your beneficiary designations up to date, especially after major life events such as the birth of a child or a divorce. You should also check your policies annually to ensure that all beneficiaries are included and that their contact information is correct.
It is also a good idea to provide beneficiaries with the name of the insurance company holding the policy. You could also give them a copy of the policy, so they can contact the insurance company when the time comes. Alternatively, you could inform a trusted advisor, such as an accountant or attorney, who can then inform the beneficiaries when the time comes.
Another option is to place a current copy of the policy with your will or other estate paperwork in a safe place where beneficiaries will be able to easily find it.
As a beneficiary, if you know you are a beneficiary, you can ask the policyholder for the details of the policy. If the policyholder has passed away, you may need to look for the policy in their paperwork, or check their bank statements or digital records for signs of life insurance premium payments.
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Beneficiaries contact the insurance company
If you believe you are a beneficiary of a life insurance policy, there are several steps you can take to find out and claim your benefits. Here is what you need to know about contacting the insurance company:
Contacting the Insurance Company
Firstly, if you know which life insurance company your loved one held their policy with, you should reach out to them directly. They will likely require certain information to verify your claim, such as the policyholder's name and date of birth, the date of their passing, and your full name and relationship to the policyholder. It is important to be prepared with the necessary documentation to support your claim.
Initiating the Claims Process
Once you have contacted the insurance company, they will guide you through the claims process. This typically involves submitting a completed claim form and providing additional documentation, such as a copy of the policyholder's death certificate and proof of your identity and relationship to the deceased. It is important to follow the insurer's instructions carefully to avoid any delays or complications in the claims process.
Understanding the Payout Options
As a beneficiary, you may have options for how to receive the death benefit. You may choose to receive a single settlement check, or you could opt for a Retained Asset Account, which is similar to a checking account maintained with the life insurance company. It is recommended to consult a tax professional to understand any potential tax consequences of your chosen option.
Locating the Policy
In some cases, you may not have all the necessary information about the policy. If you are unsure about the insurance company or the policy details, you can refer to the policyholder's personal records, such as financial documents, bank statements, or digital records for signs of life insurance premium payments or policy information. You can also check with the deceased person's employer, as many people have workplace life insurance.
Utilizing Online Resources
If you are having difficulty locating the policy or the insurance company, there are online resources available to help. The National Association of Insurance Commissioners (NAIC) offers a Life Insurance Policy Locator Service that can assist in tracking down lost policies and identifying beneficiaries. Additionally, the MIB Group's Lost Life Insurance page can also be a useful tool in your search.
Communicating with Beneficiaries
It is important to note that insurance companies may not always proactively reach out to beneficiaries. While some states have regulations requiring insurance companies to actively search for deceased policyholders and notify beneficiaries, it is ultimately the responsibility of the policy owner to inform beneficiaries of their role. Therefore, taking the initiative to contact the insurance company and start the claims process is crucial to ensuring a timely payout.
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Locating the policy
Locating a missing life insurance policy can be a challenging task, especially if you are still grieving the loss of a loved one. Here are some steps you can take to guide your search:
Speak with family and close friends
People close to the deceased may have information about the policy, such as where it was stored, the names of beneficiaries, or the insurance company. If they had an insurance agent, that person might be able to help.
Contact the insurance company
If you know the name of the insurance company or the agent who sold the policy, you can reach out to them directly. This will likely require you to submit proof that you are a beneficiary, such as your driver's license or social security number, along with the policyholder's death certificate.
Review their documents (physical and digital)
Look through the deceased's personal belongings, papers, files, safe deposit boxes, or any places they may have used to store important documents. Check bank statements for premium payments or indications that they tapped into the cash value of a whole life policy, such as funds transferred from a life insurance company into their account. Also, review tax returns for records of interest income or expenses paid to life insurance companies.
Contact the deceased's advisors
If you don't know their insurance agent, try reaching out to the deceased's accountants, attorneys, bankers, or financial advisers.
Use a life insurance policy locator
Certain organisations, such as the National Association of Insurance Commissioners (NAIC), MIB Group, and the National Association of Unclaimed Property Administrators, provide life insurance policy location services. These services can assist in locating policies or annuity contracts purchased anywhere in the United States. However, you must be an interested party with the legal right to access the policy.
Contact the deceased's employer
If you think your loved one may have been covered through their work, contact their former employer or labour union. Most life insurance policies purchased through employers are term policies that provide coverage only during employment, but sometimes individuals continue the policy after leaving the company.
Contact the state's Unclaimed Property Office
When a life insurance company is aware that an insured client has died but cannot find the beneficiary, they must turn the death benefit over to the state where the policy was purchased as "unclaimed property". You can search the state's unclaimed property database through the National Association of Unclaimed Property Administrators.
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Death benefit payout
A death benefit is a payout to the beneficiary of a life insurance policy, annuity, or pension when the insured person or annuitant dies. The death benefit can be paid out in a few different ways, including as a lump sum, as an annuity, or in the form of regular installments. The beneficiary of a life insurance policy is the person or entity that the policyholder designates to receive the death benefit. This can be a person, such as a spouse, child, or other family member, or it can be an organization such as a charity or trust. The policyholder can name multiple beneficiaries and allocate different percentages of the death benefit to each.
In most cases, beneficiaries are aware that they have been named as such because the policyholder tells them. However, if the policyholder does not inform their beneficiaries, the beneficiaries may need to take action to find out if they are beneficiaries and claim the death benefit. This may involve contacting the insurance company, checking financial documents, or using a life insurance policy locator service.
Once a beneficiary has confirmed their status, they can file a claim with the insurance company to receive the death benefit. This typically involves providing documentation such as a copy of the death certificate and completing a death claim form. The insurance company will then process the claim and pay out the death benefit according to the policy's terms.
Death benefits from life insurance policies are generally not subject to income tax, although there may be tax implications if the beneficiary receives the benefit in installments that include interest. It is always a good idea to consult a financial advisor when receiving a large sum of money, such as a death benefit.
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Probate process
Probate is the legal process of dividing and transferring ownership of inherited assets in the event of someone's death. A court official reviews the estate, attempts to follow the deceased's will (if there is one), and settles any outstanding debt while distributing assets to beneficiaries. Probate laws vary by state, but the process is usually simplest when there is a comprehensive will or an irrevocable trust, and no disputes among potential heirs.
Life insurance proceeds are typically considered non-probate assets, meaning the funds are paid directly to the designated beneficiaries upon the policyholder's death without the need for court intervention. However, there are exceptions. If there is no specified beneficiary on the policy when the owner dies, or if the beneficiary is deceased, unable to be located, or a minor, the policy must go through probate.
When a life insurance policy goes through probate, it is used to pay any remaining debts or taxes before the remainder is distributed to the intended beneficiary. This can be a lengthy and costly process, and it may take years for beneficiaries to receive their assets.
To avoid probate for life insurance proceeds, it is important to properly designate beneficiaries. The designated beneficiary must be alive, over the age of 18, and kept up-to-date. Failing to update beneficiary designations after major life events such as divorce, marriage, or death can result in the policy going through probate.
In summary, by keeping beneficiary designations clear and current, individuals can ensure that their life insurance policies provide financial protection for their loved ones without the added burden of probate.
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Frequently asked questions
A life insurance beneficiary is the person or entity designated by the policyholder to receive the death benefit payout from their policy. This can include individuals, such as a spouse or child, or organisations, such as a charity.
In most cases, beneficiaries are aware of their status because the policyholder informs them. However, if the beneficiary is unsure, they can contact the insurance company, which may require them to provide the policyholder's name and date of birth, date of passing, and their relationship to the policyholder.
Many life insurance companies will attempt to contact beneficiaries, but this is not an automatic process. Usually, the insurance company is notified of the policyholder's death by the beneficiary or other family members. To identify the beneficiary, the insurance company may require proof of the beneficiary's relationship to the deceased, as well as a copy of their ID and the policyholder's death certificate.
If a beneficiary cannot be easily identified or located, the insurance company may use the Social Security "Master Death File" to search for deceased policyholders and notify beneficiaries. This process can take time, and it is ultimately the responsibility of the policyholder to inform beneficiaries of their role.
If the beneficiary is a minor, the proceeds may be sent to the legal guardian of the minor's estate. Alternatively, the policyholder can set up a trust and name the trust as the beneficiary, ensuring that the funds are managed and distributed according to their wishes.
