Life Insurance: Is Your File Really Secure?

Life insurance is a legally binding contract between an insurance company and a policy owner, which guarantees a death benefit to the policy owner when the insured person dies. The policyholder must pay a single premium upfront or regular premiums over time for the life insurance policy to remain in force. When the insured person dies, the policy's named beneficiaries will receive the death benefit. This benefit is typically paid out as a lump sum, but there are other options, such as annuities, where the benefit is paid out in installments.

Understanding the role of a life insurance beneficiary

A life insurance beneficiary is a person chosen by the policyholder to receive the money, also known as a "death benefit", from their life insurance policy after they die. The death benefit is the primary reason for getting life insurance and is how policies are almost always described. For example, when someone says they have a $100,000 policy, it means they have $100,000 worth of death benefit insurance.

The death benefit is the money – a lump sum or otherwise – that gets paid to the beneficiaries if the insured person dies while their life insurance policy is in effect. A beneficiary needs to be specifically designated in the life insurance policy, and there can be more than one beneficiary. In fact, there often is. While a beneficiary is usually a family member, such as a spouse, parent, or sibling, they don't have to be a person. A beneficiary can also be an entity such as a charity, family trust, or business.

Beneficiaries are usually informed by the policyholder that they have been named as a life insurance beneficiary. This is the ideal situation, as it means a loved one who is still alive lets you know 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, such as where they keep the paperwork, how much the policy is worth, and the name and contact information for the insurance company.

Many life insurance companies try to contact beneficiaries if the beneficiaries don’t contact them first. However, there’s no automatic process that tells them about policyholder deaths. Usually, the way the insurance company finds out the policyholder has died is from the beneficiaries or other family members. Therefore, if you think your loved one might have had a life insurance policy, and you might be a beneficiary, there are things you can do to find out. You could ask other members of your family, look for the insurance policy itself, or look for life insurance receipts or evidence of payments in a checkbook register. Remember to also check digital storage on computers and mobile phones. If you think your loved one may have been covered through their work, contact their former employer or labor union. If any of these searches turn up the name of the insurance company, that can sometimes be enough to start the claim process.

Once the insurance company has your claim, they will verify the information and likely pay out death benefits within 30-60 days of the date the claim was filed. You’ll typically be given a choice of getting your payout in one of three different ways: a lump sum payment, an annuity, or installment payments.

How to find out if you are a beneficiary

If you believe that you are a beneficiary of a life insurance policy, there are several steps you can take to confirm this. Firstly, if the policyholder is still alive, the easiest way is to ask them. They can inform you of your beneficiary status and provide details on how to claim the death benefit when they pass away. If the policyholder has already passed away, you may need to take the following steps:

• Talk to family members and close friends: They may know about the existence of a policy, where it is stored, the name of the insurance company, and who is named as a beneficiary.
• Review the deceased's documents: Check the deceased's personal papers, both physical and digital, for the insurance policy itself, or for receipts or evidence of payments relating to the policy.
• Contact the insurance company: If you know the name of the insurance company, you can reach out to them directly. This will likely require you to provide proof of your identity and your relationship to the policyholder, as well as their date of passing.
• Contact the deceased's advisors: If you are unable to find the name of the insurance company, try reaching out to the deceased's accountants, attorneys, or financial professionals, as they may have this information.
• Use a life insurance policy locator service: Organisations such as the National Association of Insurance Commissioners (NAIC) and the National Association of Unclaimed Property Administrators offer free services to help potential beneficiaries locate policies.

If you are a beneficiary, you can then file a claim with the insurance company. This usually involves providing documentation to confirm your identity and the identity of the policyholder, such as a death certificate.

What to do if you are a beneficiary

If you are a beneficiary of a loved one's life insurance policy, there are a few steps you can take to ensure you receive the death benefit payout. Here is what you can do if you are a beneficiary:

Talk to the Policyholder

If the policyholder is still alive, the easiest way to confirm your beneficiary status is to speak with them directly. They can inform you of your beneficiary status and provide necessary information to claim the death benefit when they pass away. This is the ideal situation, as it allows you to understand your role in their life insurance policy and how to locate and claim the policy after their death.

Review Relevant Documents

If the policyholder has passed away, you can start by reviewing relevant documents such as wills, trusts, and insurance policy paperwork. These documents may mention you as a beneficiary, and the beneficiary designation form in the policy documents typically lists the beneficiaries' names. It is important to carefully review these documents to understand your rights and entitlements.

Check Personal Records

Look through the policyholder's personal papers, bank statements, or digital records for signs of life insurance premium payments or policy information. They may have left policy information in these documents, which can help you identify the insurance company and initiate the claims process.

Contact the Insurance Company

Once you have confirmed your beneficiary status, reach out to the insurance company and inform them of the policyholder's passing. They will guide you through the claims process and let you know what documentation you need to provide. It is important to follow their instructions carefully to minimize errors and avoid any delays in processing your claim.

Gather Required Documentation

The insurance company will likely request specific documentation to support your claim. This may include a copy of the policyholder's death certificate, your identification documents, and other information to confirm your identity and relationship to the policyholder. It is advisable to gather and submit all the required documentation promptly to facilitate a smooth claims process.

File the Claim

After gathering the necessary documentation, submit your claim to the insurance company. Follow their instructions carefully to ensure your claim is processed without any issues. Remember that life insurance payouts are generally tax-free regarding income taxes, but it is always a good idea to consult a financial advisor when receiving a windfall.

Receive the Death Benefit

If your claim is approved by the insurance company, they will pay out the death benefit as per the policy terms. The amount you receive and how you receive it may vary depending on the policy type and coverage amount. It is important to understand how the payout will be managed and distributed, especially if there are multiple beneficiaries involved.

What to do if you are the policyholder

If you are the policyholder of a life insurance policy, there are several steps you can take to ensure that your beneficiaries are aware of and can access the policy in the event of your death. Here are some detailed instructions on what to do if you are the policyholder:

• Inform your beneficiaries: Let your beneficiaries know that they have been named as such on your life insurance policy. This can help reduce confusion and ensure that they are aware of the policy's existence. It also allows for open communication about your final wishes and plans.
• Provide necessary information: Give your beneficiaries the following information: your full name, the name of the insurance company, the insurance company's contact information for death benefit claims, and a copy of the current policy. This will make it easier for them to submit a claim when the time comes.
• Update your policy: It is important to review and update your policy after any significant life events, such as the death of a spouse or a divorce. This includes listing a contingent beneficiary or multiple beneficiaries to ensure that there is always someone who can claim the benefits.
• Keep your policy documents organized: Make sure your beneficiaries know where to find the policy documents, or provide them with a copy. These documents include the policy number, amount of the death benefit, and beneficiary information.
• Communicate with your insurance company: Inform your insurance company of any changes in your life circumstances, such as a change of address or name change, to ensure that your policy remains active and up-to-date.
• Review your policy regularly: Schedule an annual review with your insurance agent or financial professional to ensure that your beneficiaries are up to date and that your coverage meets your needs.
• Consider the tax implications: Consult with a tax advisor to understand any potential tax implications for your beneficiaries when they receive the death benefit payout.
• Explore additional resources: Utilize resources such as the National Association of Insurance Commissioners' (NAIC) Life Insurance Policy Locator Service or your state's Department of Insurance (DOI) website to help your beneficiaries locate the policy if needed.

Remember, being a policyholder comes with certain responsibilities. By taking these steps, you can help ensure that your beneficiaries can access the benefits you have provided for them in the event of your death.

How to file a claim

To file a claim for a life insurance policy, you will need to submit a few documents to the insurance company. Here is a step-by-step guide on how to do this:

Collect important documents:

• Certified death certificate: You can request a copy from the funeral home, medical professional, or local vital records office.
• Life insurance policy document: This includes information such as the policy number, death benefit amount, and beneficiaries. Contact the insurance company or the deceased's financial representative if you cannot find this document.
• Claim form or "request for benefits" form: This is where you will provide information about the policyholder, including their policy number, date and time of death, cause of death, and your relationship to the policyholder.

• Contact the insurance company: Reach out to the insurance company or agent that issued the policy to notify them of the death and file your claim. Provide them with the collected documents.
• Wait for the claim to be processed: The insurance company will confirm that the policy is still active and verify your identity as the beneficiary. They may also check if the policy was active at the time of the insured's death. This process can take a few days to a few months, depending on the company.
• Receive the death benefit: Choose how you would like to receive the death benefit. Common options include a lump sum payment or an annuity (investing the death benefit and receiving annual payments). The death benefit is usually tax-free, and you can use it for any financial obligations or expenses.

It is important to note that life insurance policies do not pay out automatically, and beneficiaries must proactively file a claim. There is no time limit for filing a claim, but it is recommended to do so as soon as possible to expedite the process and receive the financial support you need.

Frequently asked questions