Life Insurance Payouts: How Long Do Uk Beneficiaries Wait?

Life insurance is a financial product that provides peace of mind and financial security for your loved ones after you're gone. But how long does it take for the beneficiaries to receive the payout?

On average, it takes anywhere from 14 to 60 days to receive a life insurance payout once a claim has been filed. However, in some cases, the payout can be made as quickly as 3 to 5 days. The speed of the payout depends on various factors, including the life insurance company's policies, the type of policy, state laws, the cause of death, and the timeliness of claim filing.

It's important to note that life insurance companies won't automatically initiate the payout process upon the policyholder's death. It's the responsibility of the beneficiary to contact the insurer and start the claims process by providing the necessary documentation, such as a death certificate.

To ensure a timely payout, it's recommended to file the claim as soon as possible, provide complete and accurate information, and clearly designate the beneficiaries.

How long does it take for a life insurance payout in the UK?

In the UK, 96.7% of life insurance claims are successful. However, there is no fixed timeline for how long it takes for a life insurance payout, and the process can take anywhere from 3 to 60 days. The time it takes depends on a number of factors, including the claim filing date, the type of policy, the cause of death, providing proof of identity and medical records, estate issues, and more.

In general, beneficiaries are encouraged to file a claim as soon as possible after the policy owner's death to expedite the payout process. This is for the beneficiary's benefit, as death benefits are intended to help with funeral expenses, beneficiary living expenses, and other important financial obligations. However, there is usually no time limit for claiming a life insurance payout. Beneficiaries can usually file at any time, provided the premiums were paid and the policy was in good standing with the life insurance company.

To ensure a timely payout, it is advisable to submit the claim promptly, provide complete documentation, and clearly designate the beneficiaries.

What payout options are available to beneficiaries?

When a loved one passes away, their beneficiaries are often faced with financial decisions and paperwork. The payout options available to beneficiaries depend on the type of insurance policy and the preferences of the beneficiary. Here are the common payout options available to beneficiaries in the UK:

Lump-Sum Payment

This is the most common payout option. Beneficiaries receive the entire death benefit in one single, usually tax-free, payment. This method can be beneficial for covering significant expenses or debts and provides immediate access to the full amount.

Installment Payments

Beneficiaries can opt to receive the death benefit in regular installments over a fixed period or for their lifetime. This option provides a steady income stream, making financial planning more manageable. The installments can be set to a specific amount 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 option, the insurer holds the death benefit in an interest-bearing savings account that the beneficiary can access via checks. This approach offers flexibility and easy access to funds while also earning interest. Similar to the above option, any interest earned may be taxable.

Interest-Only Payout

With this option, the insurer retains the death benefit and pays the beneficiary only the interest earned on the principal amount. The principal remains intact and can be passed on to other beneficiaries upon the original beneficiary's death. This option provides regular income but may come with taxable interest.

Lifetime Annuity

A lifetime annuity provides guaranteed payments to the beneficiary for the rest of their life. The payment amount is determined based on the death benefit and the beneficiary's age. If the beneficiary dies before the entire death benefit is paid out, the remaining amount typically reverts to the insurer.

Fixed-Period Annuity

In a fixed-period annuity, the death benefit is paid out over a specified period, such as 10 or 20 years. If the beneficiary dies before the end of this period, their designated beneficiaries can continue to receive the remaining payments. This option ensures a steady income for a defined duration.

What is the average life insurance payout?

The average life insurance payout in the UK is around £167,000, while in the US it is about $168,000. However, the payout amount can vary significantly depending on factors such as the policy type, coverage amount, age, health, and insurance provider.

Term life insurance policies typically offer lower payouts compared to whole life or universal life policies. Term life insurance provides coverage for a specified term, such as 10, 20, or 30 years, and pays out the death benefit if the policyholder passes away during the policy term. On the other hand, whole life insurance and universal life insurance have an investment component that can grow over time, resulting in potentially higher payouts.

The payout amount is directly related to the premiums paid. Higher premiums generally lead to larger payouts, providing greater financial security for beneficiaries. Additionally, younger and healthier individuals often qualify for higher coverage amounts at lower premiums due to the lower risk associated with insuring them.

Policy add-ons, such as accidental death or critical illness riders, can also increase the overall payout, providing additional financial protection. These riders offer living benefits, allowing the policyholder to access a portion of the death benefit under specific conditions. However, utilising these benefits will reduce the final payout.

The lowest life insurance payout can be as low as $5,000 to $10,000, typically for policies designed for specific purposes like covering funeral expenses. In contrast, the highest life insurance payout can reach several million dollars, catering to high-net-worth individuals aiming to protect their estate or business interests.

What factors can delay a life insurance payout?

Several factors can cause delays in life insurance payouts. Here are some of the most common reasons:

• Missing or incorrect documents: Missing or incorrect paperwork, such as a missing death certificate or incomplete insurance claim forms, can cause delays. It is essential for policyholders to regularly update their beneficiaries and provide them with relevant information and instructions for filing a claim.
• Cause of death investigation: Insurers investigate the cause of death to ensure it falls within the policy's coverage and terms. Unusual circumstances surrounding the death may require further investigation, potentially delaying the payout.
• Criminal activity: Insurers must verify that the policyholder was not involved in any criminal activity at the time of death. Additionally, they need to confirm that the beneficiary was not responsible for the policyholder's homicide, as this could impact the payout.
• Life insurance fraud: Life insurance fraud is prevalent, and insurers thoroughly review applications and policy documents if they suspect any fraudulent activity. Even if no fraud is found, this process can cause delays.
• Contestability period: The first one to two years of a policy is known as the contestability period, during which insurers have the right to review claims more closely. This period exists to protect insurers against errors, false information, or missing information that could impact coverage. Claims made during this period may take longer to process.
• Policy purchase date: Policies are typically contestable by the company for the first two years. If the policyholder's death occurs soon after the policy is purchased, the insurer may have additional questions, as claims on new policies can be indicative of fraud.
• Suspected foul play: If the policyholder's death was due to murder, the insurance company may delay the payout as they work with the police to ensure the beneficiary was not involved.
• Policy exclusions: Some policies have exclusions that limit or exclude coverage for specific causes of death, such as suicide or death resulting from criminal activity. If the policyholder dies from an excluded cause, the insurer may not pay the death benefit.
• Estate issues: If there are legal issues or contests regarding the insured's estate, the insurance company may wait for these matters to be resolved before making the payout.
• State laws: Life insurance is regulated at the state level, and different state laws can impact the payout process, including contestability periods, estate taxes, intestacy laws, and unclaimed property laws.
• Claim filing timeliness: Delays in filing the claim or submitting necessary documents can extend the time it takes to receive the payout. It is recommended to file the claim as soon as possible and provide all required documentation promptly.

What should you do if your life insurance claim is declined?

Don't panic if your life insurance application is declined. It's normal for most people to be able to find a life insurance policy that works for them. Here are some steps you can take if your claim is declined:

Find out why and push back:

It is common to receive a letter stating that your life insurance claim has been declined without much detail about the reason. You have the right to ask the insurer for specific reasons for the decline, and they should be able to provide more detail. Ask questions such as:

• Why have I been declined life insurance?
• What specific things about my health (or other risk factors) have led to the decline?
• Is this a permanent decline, or is there a possibility of my application being considered at a later date?

Get your medical records:

In most cases, a declined life insurance claim is due to a medical condition, and the insurer has relied on a GP report. It is a good idea to get a copy of your medical records to check for any inaccuracies. Errors in GP reports are not uncommon, as doctors are often very busy, but it is important to correct any mistakes to ensure that your records are accurate. Having a copy of your medical records will also help you provide the correct information when approaching other insurers.

Challenge the decision:

If your life insurance claim has been declined due to a health reason, it can be challenging to dispute this without a copy of your medical records. Insurers must follow strict data protection laws, and sometimes GPs specifically state that you are not allowed to see the report they have written. When your application goes to the insurer, they will let you know if they want to see a report from your GP, and you can choose whether or not to approve its release. Seeing the report may take longer, as the GP will not send it without your approval, but it gives you the opportunity to check it for accuracy and ensure that it includes all relevant technical medical terms. If you choose not to see the report, the process may be quicker, but you won't be able to verify its contents.

Consult an adviser:

Not everyone will understand the intricacies of how insurers write their policies, but an adviser will know which company is best suited to your specific risk factors and can guide you on your next steps.

Frequently asked questions