Life Insurance Payout: Claiming And Collecting After A Death

After a person's death, their loved ones are tasked with closing their estate, which includes sorting through their financial documents and filing a life insurance claim if they had a policy. The beneficiary named on the policy is responsible for filing a claim with the insurance company to receive a payout of the insurance benefit. This typically involves notifying the insurance company of the policyholder's death, reviewing the policy and claim form, and providing a copy of the death certificate. While there is no deadline for filing a life insurance claim, starting the process sooner can ensure a smoother payout process.

Finding a life insurance policy after death

If you've recently lost a loved one and are unsure if they had a life insurance policy, or know they did but can't find it, there are several steps you can take to locate it. It's important to act proactively, as life insurance companies do conduct beneficiary searches for unclaimed benefits, but these are not always effective.

Speak with family and close friends

People close to the deceased may have information about the policy, such as where it's stored, the name of the insurance company, or the people named as beneficiaries. If the deceased had an insurance agent, their contact details may be in the deceased's phone or address book, and this person could also be a good source of information.

Contact the insurance company

If you know the name of the insurance company or agent that issued the policy, you can reach out to them directly. They will likely require you to submit proof that you're a beneficiary, such as your driver's license or social security number, as well as the policyholder's death certificate.

Review their documents

Look through the deceased's personal belongings, papers, files, and safe deposit boxes (if you have access) for any information related to a life insurance policy. 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.

Contact the deceased's advisors

If you don't know the name of their insurance agent, try reaching out to the deceased's accountants, attorneys, or financial professionals. They may have information about any life insurance policies.

Use a life insurance policy locator

Certain organisations have online tools that can help you locate a policy, but you must be an interested party with the legal right to access it. The National Association of Insurance Commissioners (NAIC), MIB Group, and the National Association of Unclaimed Property Administrators all provide life insurance policy location services. To use the NAIC's Life Insurance Policy Locator, go to their website, agree to the terms of use, and enter your contact details and the deceased's social security number, veteran status, and your relationship to them. If a policy is found and you are the beneficiary, the insurance company will contact you directly.

To locate a policy, it's helpful to have the deceased's legal first and last name, any former names, their social security number, and proof of your own identity, such as a driver's license or passport. If the deceased served in the military and you think they had life insurance through the Veterans Administration, it's also a good idea to have any discharge papers or other records of their service.

Notifying the insurer of the policyholder's death

Locate the Insurance Policy:

First, locate the deceased person's life insurance policy or policies. Check their personal and financial records, including documents, emails, or bank statements that might indicate the existence of a policy. If you are unable to locate the policy, you can contact their financial advisor, former employers, or check with the National Association of Insurance Commissioners.

Notify the Insurer:

Regardless of whether you are a named beneficiary or not, it is important to notify the insurer of the policyholder's death as soon as possible. Contact the insurer's local agent or visit their website to inform them of the death. Making the insurer aware of the death will help initiate the process of identifying the policy's beneficiaries and ensure a smooth payout process.

Provide Necessary Information:

When notifying the insurer, you will need to provide certain information about the deceased and yourself. This includes the insured's name, date of birth, date and cause of death, state of residence, and Social Security number or policy number. You will also need to provide a certified copy of the death certificate, which can be obtained through the county, hospital, or nursing home where the person passed away.

Understand the Claims Process:

Once the insurer has been notified, they will provide instructions on how to file a claim. This may include submitting forms and additional documentation online, by mail, or in person. The insurer will likely have specific claim requirements, so be sure to follow their instructions carefully.

Communicate with Beneficiaries:

If there are multiple beneficiaries named on the policy, each beneficiary will typically need to submit their own claim form and documentation. It is important to communicate with the other beneficiaries to ensure they are aware of the policy and have started their claim process.

Seek Support:

Notifying the insurer and initiating the claims process can be complex and time-consuming. If needed, don't hesitate to seek support from a financial advisor, estate planner, or even the funeral home, who can assist in obtaining the necessary documentation.

Remember, each insurer may have slightly different processes and requirements, so be sure to refer to their specific guidelines. By carefully following these steps, you can help ensure that the life insurance claim is handled efficiently and that the beneficiaries receive their rightful payouts.

Filing a claim as a beneficiary

As a beneficiary, there are several steps you need to take to file a claim and receive the life insurance payout.

First, you must find the insured's life insurance policy, which will have the insurance company's contact information and claim instructions. If you are unable to find the policy but know the name of the insurance company, they should be able to help you locate the policy information. You can also check with the deceased's financial advisor and the National Association of Insurance Commissioners.

Second, you will need to gather the required documentation, which typically includes personal details about the deceased and yourself, as well as a certified copy of the death certificate. The death certificate can usually be obtained through the county or the hospital/nursing home where the insured passed away. If the insured's obituary was published in a newspaper, submitting a clipping is optional but may help speed up the process.

Third, you will need to choose your preferred payout type. You may have the option of receiving your payout as a lump sum, which is the most common choice, or as a life insurance annuity, which would pay out regularly over a specified timeframe. It is recommended that you consult with a financial advisor to discuss the financial implications of the differing payout types.

Fourth, once you have completed the claim form, gathered the required documentation, and decided on the payout option, you can submit your claim to the insurer. In most cases, there is no deadline for filing a life insurance claim, and you can expect to receive your payout within 30 to 60 days if there are no issues. However, it's important to note that the payout can be delayed due to various factors, including a contestability clause, a suicide clause, or an investigation if the death certificate lists homicide.

Understanding the different types of life insurance policies

There are several types of life insurance policies available, each with its own unique characteristics and benefits. The two main classes of life insurance products are term and cash value policies. Here is an overview of some of the most common types:

Term Life Insurance: Term life insurance is purchased for a specific period, such as 10 or 20 years. It provides coverage for a set number of years and pays out if the insured dies during the term. Term life insurance is typically more affordable and offers lower-cost coverage. At the end of the term, the policy may allow for renewal, but the premiums may increase.

Whole Life Insurance: Whole life insurance is a type of permanent life insurance that provides coverage for the insured's entire lifetime. It includes a savings component, where a portion of the premium is allocated towards building cash value over time. The policyholder can access this cash value while they are alive, and it is separate from the death benefit paid out to beneficiaries.

Universal Life Insurance: Universal life insurance is another form of permanent life insurance that offers flexibility. Policyholders can adjust their death benefit and monthly premiums within certain limits. It also includes a savings component, but unlike whole life insurance, the interest rate is not fixed and can change based on market conditions.

Variable Life Insurance: Variable life insurance is a riskier type of permanent life insurance. It consists of a fixed death benefit and a variable cash value that rises and falls based on investment performance. While it offers the potential for higher returns, it also carries higher risk, fees, and costs.

Final Expense Life Insurance: Also known as funeral or burial insurance, final expense life insurance is a type of whole life insurance with a smaller, more affordable death benefit. It is designed to cover end-of-life expenses such as funeral costs, medical bills, or outstanding debt. This type of policy is often easier for older or less healthy individuals to qualify for.

These are just a few examples of the different types of life insurance policies available. When choosing a policy, it is important to consider your individual needs, financial situation, and long-term goals to ensure you select the most appropriate coverage.

Choosing a payout type

Lump-Sum Payment

The most common and default option for life insurance payouts is a lump-sum payment, where the beneficiary receives the entire death benefit in one go. This option provides immediate access to funds, which can be crucial for covering significant expenses or debts. It also offers the most flexibility, as there are typically no restrictions on how the money can be spent. However, receiving a large sum of money at once can be overwhelming, and you will be responsible for managing it wisely. Additionally, if the payout exceeds the Federal Deposit Insurance Corporation (FDIC) limit of $250,000, you may need to spread it across multiple accounts or institutions.

Installment Payments

With this option, the beneficiary can choose to receive the death benefit in regular installments over a fixed period or for their lifetime. This provides a steady income stream and makes financial planning more manageable. The installments can be set to a specific amount and paid monthly, quarterly, or annually until the proceeds are depleted. However, any interest earned on these payments may be subject to taxes.

Retained Asset Account (RAA)

In this case, the insurance company sets up an interest-bearing account for the beneficiary and provides them with a checkbook to draw funds as needed. This option offers flexibility and easy access to funds while also earning interest. However, the interest earned is typically taxable, and the interest rate offered by the insurer may not be as competitive as other investment options.

Lifetime Annuity

A lifetime annuity guarantees installment payments for as long as the beneficiary lives. The amount is determined based on the beneficiary's age and the death benefit amount. This option provides peace of mind and a guaranteed income stream, but the payments may be smaller if the beneficiary is younger. Additionally, there may be fees or surrender charges associated with this option, and if the beneficiary dies before receiving the full benefit, the remaining amount typically goes back to the insurer.

Fixed-Period Annuity

Similar to a lifetime annuity, a fixed-period annuity pays out the death benefit in regular installments over a specified period, such as 10 or 20 years. If the beneficiary dies before the end of this period, their designated beneficiaries will continue to receive the remaining payments. This option ensures a steady income for a defined period.

When choosing a payout type, it is essential to consider your financial goals, age, and risk tolerance. Younger beneficiaries may prefer the flexibility of a lump-sum payment, while older retirees may opt for the guaranteed income of an annuity. Consulting with a financial planner or advisor can help you make an informed decision that aligns with your needs and goals.

Frequently asked questions