Life Insurance: Death And Payouts Explained

When someone with a life insurance policy dies, their beneficiaries must file a claim with the insurance company to receive the death benefit. The death benefit is the sum of money paid out to beneficiaries when the insured person passes away, and it is the primary reason people get life insurance. The death benefit is typically paid as a lump sum, but beneficiaries can also choose to receive it in installments or as an annuity.

How to find out if someone had life insurance

If you've recently lost a loved one and are unsure if they had life insurance, there are several steps you can take to find out. Here is a detailed and direct guide on how to locate a life insurance policy and determine if you are a beneficiary.

Speak with family and close friends:

People close to the deceased may have information about the policy, such as where it was stored, the beneficiaries, or the name of the insurance company or agent.

Contact the insurance company:

If you know the name of the insurance company or agent, reach out to them directly. You will likely need to provide proof that you are a beneficiary, such as your driver's license, social security number, and the policyholder's death certificate.

Review their documents:

Look through the deceased's personal belongings, files, safe deposit boxes, or anywhere they may have stored important documents. Check bank statements for premium payments or indications that they accessed the cash value of a whole life policy.

Contact the deceased's advisors:

If you don't know their insurance agent, try reaching out to their accountants, attorneys, or financial professionals, who may have the necessary information.

Use a life insurance policy locator:

Certain organizations, such as the National Association of Insurance Commissioners (NAIC), MIB Group, and the National Association of Unclaimed Property Administrators, provide online tools to help locate a policy. However, you must be an interested party with the legal right to access the information.

Collect necessary information:

Keep a file with the deceased's legal first and last name, any former names, social security number, and proof of your own identity. If the deceased served in the military, having discharge papers or other records can also be helpful.

Determine if you are a beneficiary:

Contact the policy issuer (the life insurance company) to confirm if you are a beneficiary. Even if you believe you are listed on an old policy document, the beneficiary may have been changed.

Make a life insurance claim:

If you are a beneficiary, contact the insurance company directly to make a claim. Provide the necessary documentation, such as the policy itself, your full name, contact information, social security number, and the death certificate of the policyholder.

Remember, you must be named as a beneficiary to claim any death benefits, and there may be delays in the payout process due to missing information, policy age, cause of death, misrepresentation, or changes in beneficiaries.

How to file a claim

How to File a Life Insurance Claim

The process of filing a life insurance claim can be daunting, especially if you're dealing with the grief of losing a loved one. Here are the steps you can follow to make the process smoother:

Step 1: Determine the Insurance Company

The first step is to identify the life insurance company that holds the policy. This is crucial because the beneficiaries need to know they are owed a death benefit. If the policyholder hasn't informed the beneficiaries, it can be challenging to locate the policy. Here are some tips to help you find the insurance company:

• Review the deceased person's bank accounts and cancelled checks for payments to a life insurance company.
• Look through their records, including safety deposit boxes, for policies.
• Contact their previous employer to inquire about a group life insurance policy.
• Check income tax records for information about the policy.
• Reach out to your state's Department of Insurance for assistance.
• Utilise the National Association of Insurance Commissioners' Life Insurance Policy Locator Service.

Step 2: Obtain the Death Certificate

The next step is to obtain a certified death certificate, which is required to file the claim. You can usually obtain this from a local health department or funeral home. It is recommended to get multiple certified copies as they may be needed for closing accounts and utilities.

Step 3: File the Claim

Once you have the death certificate, you can initiate the claim process. Many insurance companies allow you to start the process online, or you can contact them directly. In addition to the death certificate, you will likely need the following information:

• Name of the insured
• Date of birth of the insured
• Date of death
• Policy number
• Social Security number of the insured
• Cause of death
• Name and contact information of the beneficiary

Step 4: Choose the Payout Option

After filing the claim, you will need to decide how you want to receive the life insurance payout. There are several options to choose from, and it's important to consider your financial situation and needs when making this decision:

• Lump Sum: You receive the entire death benefit at once.
• Specific Income: The insurer pays you the death benefit on a schedule or over a specific time period.
• Life Income: You receive income for life, with the amount determined by your age and gender.
• Interest Income: The insurance company pays you interest on the policy, and the death benefit goes to another beneficiary upon your death.
• Retained Asset Account: The insurer holds the money in an interest-bearing account, and you can write checks against it.

Step 5: Wait for Claim Approval

After submitting the claim, the insurance company will review it. They may contact you if they require additional information. The review process can take up to 30 days, and once the claim is approved, the insurer will issue the payout based on your chosen option.

How to receive a payout

The process of receiving a life insurance payout begins with the beneficiary. The beneficiary must contact the insurance company and submit a claim. This can be done by filling out a form, usually called a "Request for Benefits", and providing a copy of the death certificate. The beneficiary will also need to provide the name of the insurance company and the insured's death certificate. It is wise to do this as soon as possible, although there is usually no deadline for filing a claim.

Once the insurance company has received the claim, they will review it. The review process typically takes around 30-60 days, although this may vary depending on the state and insurance company. If the claim is approved, the beneficiary will receive the payout. The payout can be received in various ways, including:

• Lump-sum payment
• Installment payments
• Retained asset account
• Interest-only payout
• Lifetime annuity
• Fixed-period annuity

The beneficiary can choose the form of payment that best suits their needs. It is important to note that any interest earned on the payout may be subject to taxes.

To avoid delays in the payout process, it is crucial to ensure that premiums are always paid on time and that complete and accurate information is provided on the life insurance application, especially regarding health status. Additionally, minor children cannot directly receive a payout, so it is important to establish a trust or appoint a legal guardian if minor children are named as beneficiaries.

Reasons for a delayed payout

There are several reasons why a life insurance payout might be delayed. Here are some of the most common factors that can cause a delay:

• Missing or incomplete information: If the insurance company does not have all the required documents, such as a death certificate, beneficiary contact information, or correctly filled-out claim forms, this may cause a delay in processing the claim.
• The policy's age: Most insurers will investigate the claim if the death occurs within the first two years of the policy, which is known as the contestability period. This is to help prevent fraudulent claims.
• Cause of death: Certain causes of death, such as suicide, drug or alcohol abuse, or death resulting from high-risk activities like skydiving, may be excluded from coverage under the policy and may require further investigation.
• Misrepresentation: If the policyholder lied or failed to disclose important information on their application, such as pre-existing health conditions, the insurance company can void the policy and deny the claim. An investigation for potential fraud can delay the settlement and payout.
• Homicide: If the death certificate lists homicide as the cause of death, the insurance company will likely communicate with the authorities to ensure the beneficiary is not a suspect. The payout will be delayed until any suspicion regarding the beneficiary's involvement is cleared.
• Death during illegal activity: If the insured party died while engaging in illegal or criminal activities, the insurance company may deny the claim. Even if the crime was committed unknowingly, the policy might not pay out.
• Administrative errors: Delays can also occur due to administrative errors, such as missing medical records or failure to notify the policyholder of a lapse or termination.
• Death in a foreign country: When the insured dies abroad, the insurance company may take longer to investigate the claim. They will need to independently confirm the circumstances of the death, as customary practices, records, and technologies vary across countries.

Who gets the payout?

When someone dies, the beneficiary or beneficiaries of their life insurance policy will receive a payout. A beneficiary is a person or entity, such as a charity, family trust, or business, specifically designated in the life insurance policy to receive the benefit.

There can be more than one beneficiary, and the policyholder can allocate different percentages of the benefit to different beneficiaries. The policyholder is responsible for designating their beneficiary or beneficiaries when purchasing the policy.

If the policyholder dies without a will, the life insurance and any other assets will be paid out in line with the rules of intestacy. In this case, the payout will go to the deceased's heirs, usually their spouse, children, or other family members.

If there are no beneficiaries left alive at the insured's death, the death benefit will be added to the insured person's estate and may be subject to tax.

Minor children can be designated beneficiaries but cannot directly receive a payout. If minor children are named as beneficiaries, the policyholder may need to establish a trust or appoint a legal guardian to manage the funds until the children reach the legal age.

Beneficiaries can choose how they wish to receive their benefit payout. Common options include a lump sum payment, specific income payout, lifetime annuity, fixed-period annuity, and retained asset account. The choice of payout option may depend on the insurance company and policy, with some allowing the insured or policyholder to indicate their preference when setting up the policy.

Frequently asked questions