Life Trust Insurance: Quick Collection Timeline Explained

When a loved one passes away, their closest relatives are usually tasked with closing their estate. This can include anything from planning a funeral to sorting through financial documents. If the deceased had a life insurance policy, it's important to file a claim so that the beneficiary can receive a payout. While there is generally no time limit on how long you have to claim life insurance benefits, certain conditions must be met for a payout to be collected. The beneficiary must file a claim, and the policy must have been in force at the time of the insured's death. Once the claim has been filed and reviewed by the insurance company, they will notify the beneficiary of their decision to pay out the claim, ask for additional information, or deny it. If the claim is approved, the beneficiary can choose how they wish to receive the payout, such as a lump sum or regular instalments.

The role of a beneficiary

Beneficiaries play a crucial role in the life insurance claim process. They are responsible for filing a claim with the insurance company and providing the necessary documentation, such as a death certificate, to initiate the payout. Most insurance companies require the beneficiary to submit a claim form and may also accept claims filed online or over the phone. The beneficiary must also choose their preferred payout type, which can be a lump sum, regular installments, or an annuity.

It is important to note that life insurance benefits are not automatically paid out to the beneficiary. The insurance company must be notified of the policyholder's death, and there may be a review process that can take up to 30 calendar days. During this time, the insurance company will investigate the claim and determine whether to pay out, deny, or request additional information.

In some cases, there may be delays in the payout due to contestability or suicide clauses in the policy. If the policyholder passes away within the first two years of the policy, the insurance company may investigate for insurance fraud or deny benefits if the death was by suicide. Additionally, if the death certificate lists homicide, the insurance company will conduct an investigation to rule out the beneficiary as a suspect.

To ensure a smooth process, beneficiaries should be proactive in filing a claim and providing the necessary documentation. While there is generally no time limit for claiming life insurance benefits, it is beneficial to initiate the process as soon as possible to receive the payout in a timely manner.

Overall, the role of a beneficiary in a life insurance trust is crucial in carrying out the wishes of the insured and ensuring that the proceeds of the policy are managed and distributed appropriately.

How to file a claim

The process of filing a claim for a life insurance policy is similar to filing for other kinds of insurance. Here are the steps you need to follow:

Step 1: Contact the Insurance Company or Agent

The name of the insurance company will be clearly stated on the policy. If you can 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, you can contact the insurance company directly. They will be able to track down the policy information once you provide certain details about yourself and the deceased.

Step 2: Get Copies of the Death Certificate

Make sure you obtain certified copies of the death certificate from the funeral director. Most insurance companies will not accept photocopies. It is recommended to get at least 10 certified copies, as you will need them for various administrative tasks such as cancelling subscriptions, closing accounts, accessing financial accounts, and filing income taxes.

Step 3: Fill Out the Paperwork and Submit the Claim

Most insurance companies make their claim forms available online. If not, you can call the insurance company or agent to find out the necessary steps. Along with the completed claim form, you will need to submit the death certificate and other relevant documents. The insurance company's website should outline the specific paperwork and supporting documents required.

Step 4: Choose Your Payout Type

You may have the option to receive your payout as a lump sum, which is the most common choice, or as regular installments over a specified timeframe. Consult with the insurer and a financial advisor to determine which option is best for you.

Step 5: Wait for the Claim to be Processed

Depending on the state you live in, an insurance company could have up to 30 days to review and accept or reject the claim. In most cases, companies will pay out a life insurance claim within a week or two after receiving the paperwork. If there are no issues with the claim, you may receive your payout in as little as three to five days.

Choosing a payout type

When it comes to choosing a payout type for your life insurance policy, there are a few options to consider. The most common option is to receive a lump sum payment, where you get the full death benefit in one go. This is a good choice if you want immediate access to the entire amount, but it's worth considering the tax implications and whether it might be more beneficial to receive the payout in instalments.

Another option is to receive a fixed amount in monthly instalments. This can help ensure the money lasts longer and can provide a regular income stream. You can choose the amount and duration of these payments, which will be held in an interest-earning account by the insurance company. However, it's important to note that any interest earned on the balance will be taxable.

A retained asset account is another payout option offered by some insurance companies. With this option, your death benefit proceeds are transferred to an interest-earning account, and you are provided with a checkbook to access the funds. This option offers the flexibility to use the cash as needed while still earning interest. Additionally, the insurance company insures the entire amount, even if it exceeds the Federal Deposit Insurance Corporation (FDIC) limit. However, similar to the fixed amount option, you will need to pay taxes on any interest earned.

The final option is an annuity, which guarantees instalment payments for the rest of your life. The insurance company will determine the annuity payments based on your age and the benefit amount. This option can provide peace of mind and a consistent income stream, but it's important to weigh the benefits against other options available to you.

It's always a good idea to consult with the insurance company and a financial advisor to understand the financial implications of each payout type and make an informed decision that aligns with your goals and needs.

Required documentation

To collect life insurance, the beneficiary will need to provide the following required 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. This can be obtained through the county or the hospital or nursing home in which the insured passed away.
• 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.

If the insurance policy was owned by a Revocable or Irrevocable Trust, the insurance company will also need to review the Trust document to identify the owner and the beneficiary.

If the insured's death occurred during the policy's contestability period, or if there is any question about the cause of death, the insurance company will likely investigate the claim. This may delay the payout of the death benefit. In this case, the insurance company may require additional documentation, such as medical records or police reports, to support the claim.

It is important to note that the required documentation may vary by insurance company, so it is recommended to review the insurance policy and contact the insurance company for specific instructions and requirements.

Reasons for a denied claim

While it is rare for a life insurance claim to be denied, there are several reasons why this might happen. Here are some of the most common reasons for a denied claim:

Policy Delinquency or Lapse

If the policyholder fails to pay their premiums on time, their coverage will lapse, and the policy will no longer be in force. This is one of the most common reasons for denied claims, as the policyholder may not have informed the beneficiaries of the lapse before their death.

Material Misrepresentation or Insurance Fraud

Material misrepresentation occurs when the policyholder provides false or misleading information on their application, such as lying about their medical history, occupation, or hobbies. This can also include non-disclosure of another life insurance policy or incorrect information provided by the agent. Insurance fraud can also occur if the policyholder attempts to conceal a medical condition or provide false information to the insurer.

Contestable Circumstances

Contestable circumstances typically apply during the first two to three years after the policy becomes effective. During this period, insurers may deny claims if the death falls under specific circumstances, such as suicide or an illegal act. Other common exclusions include death during military service, aviation, or certain health conditions.

Documentation Failure

Documentation failure refers to the inability of the family or heirs to provide the necessary paperwork, such as a death certificate, to receive the death benefit. Insurers usually require at least a death certificate to initiate the payment process for the beneficiaries.

Type of Death Not Covered in the Policy

In the past, life insurers used a variety of exclusions based on the type of death. While this is less common today, some policies may still exclude certain causes of death, such as death while engaging in dangerous hobbies or activities. The most common exclusion is death by suicide, especially if it occurs during the contestability period.

Frequently asked questions