Life Insurance Claims: When And Why To File

Life insurance is a financial safety net for you and your loved ones. It ensures that your family is financially secure in the event of your death. When you buy a life insurance policy, you become the policyholder and can name beneficiaries—the people who will receive the benefits of the policy. When the policyholder passes away, the beneficiaries must contact the insurance company to begin the process of filing a claim. The insurance company will then verify the policyholder's passing and check the policy terms to ensure the death is covered. Once the claim is approved, the beneficiaries will receive the death benefit payout, which they can use for any purpose, including funeral costs, rent, or education.

Claiming as a beneficiary

If you are a beneficiary, you can claim the benefits of a life insurance policy if the policyholder has passed away. The first step is to identify the policyholder's insurer, which should be detailed in the policy documents. If you are unable to locate the policy, you can try checking the deceased's bank records, credit card statements, or with any accountants or attorneys they may have used. The National Association of Unclaimed Property Administrators also has a free tool to help locate lost or unclaimed insurance money.

Once you have identified the insurer, contact them to start your claim. They will direct you to their claim form, which you will need to fill out and submit along with the policy number and a certified copy of the policyholder's death certificate. You may also need to provide additional documentation, such as medical records or police reports, depending on the circumstances of the death. It is important to triple-check your answers before submitting to avoid delays in the process.

Insurers will typically take between two weeks and two months to process and pay out the benefit, although this can vary depending on the policy type, insurer, and local regulations. During this time, they will verify the policyholder's death, check the policy terms, and confirm the beneficiaries. The beneficiary will then receive the payout according to the selected payment method, which could be a lump sum, regular payments, or a retained asset account.

It is recommended to communicate with the insurer throughout the process to ensure a smooth transaction and allow for follow-up if delays occur.

Identifying the insurer

If the beneficiary does not know the identity of the insurer, they can try to locate the policy document. The policy document should include the full legal name of the insurance company that issued the policy, along with the company's mailing address and phone number. If the phone number is no longer active, the beneficiary can contact the insurance department in the insurance company's home state, which will have records of the company's current name, mergers, and other changes.

If the beneficiary does not have access to the policy document, they may still be able to identify the insurer by knowing the company's name and the state where the policy was purchased. The beneficiary can then contact the state's insurance department, which will have records of the company's current information. It is important to note that state insurance departments do not have records of specific insurance policies.

Additionally, the beneficiary can try to identify the insurer by checking the policyholder's bank accounts and cancelled checks to see if payments were being made to a life insurance company. They can also check with the policyholder's auto or home insurance agent, as the policy may have been purchased through them. Reviewing the policyholder's income tax records and checking with the State Controller's Office can also help identify the insurer.

Required documents

When it comes to claiming life insurance, there are a few key documents you will need to gather. The requirements may vary slightly depending on the insurance company and the specific circumstances of the policyholder, but here is a general overview:

• Death Certificate: This is the most crucial document and is required by almost all insurance companies. You will need to submit a certified copy of the death certificate, which can be obtained from the funeral director or the vital records department in the state where the deceased person lived. Some companies may accept a photocopy, while others might ask for the original death certificate. If the person is missing and not declared dead, you may need to provide an acceptable alternative to the death certificate.
• Insurance Policy Documents: These documents contain important information about the policy, such as the term, death benefit amount, policyholder details, and the policy number. The insurance company will use these documents to cross-reference with their internal records to ensure the accuracy of the claim. If you cannot locate the policy document, you can try contacting the insurance company directly or reaching out to the deceased's financial advisor for assistance.
• Claim Form: Most insurance companies will require you to fill out a specific claim form, which may be referred to as a "request for benefits" form. This form will ask for details about the policyholder, such as their policy number, date and time of death, cause of death, and your relationship to the policyholder. It will also allow you to indicate your preferred method of receiving the claim proceeds.
• Identification Documents: The insurance company may ask you to provide proof of your identity as the beneficiary. This could include documents such as your birth certificate or other forms of identification.
• Military Service Records (if applicable): If the insured was a veteran, reservist, or served in the military, you may need to provide additional documentation. This could include forms such as DD Form 214 (Certificate of Release or Discharge from Active Duty) or NGB-22 (Report of Separation and Military Service).
• Additional Forms: Depending on the insurance company and the specific circumstances, there may be other forms to complete. For example, if you prefer monthly payments instead of a lump sum payout, additional information or forms may be required.

It is important to contact the insurance company or agent directly to clarify the specific documents required for your claim, as there may be variations based on individual circumstances. They can guide you through their process and ensure you have all the necessary paperwork to expedite the claim process.

Claim processing time

The claim processing time for life insurance varies depending on several factors. While most sources state that the processing time is usually between 14 and 60 days, some state that it can take up to 30 days to receive the payout after filing the required documentation.

The time taken to process a life insurance claim depends on various factors, including the insurance company's processing procedures, the policy type, the cause of death, and how quickly the necessary claim documents are received. For instance, term life insurance, which is a simpler type of policy, may process more quickly than permanent life insurance policies. Additionally, the insurer must verify the policyholder's death, check the policy terms to ensure the death is covered, and verify the beneficiaries.

Incomplete information and improper documentation at the time of the claim can also cause delays in the process. It is important to have all the necessary paperwork, such as the policy documents, death certificates, and claims forms, to avoid any delays. If there are any issues with the policy's paperwork or if the insurance company suspects fraud, the claim process may take longer.

Regulations and state laws can also impact the processing time. Each state has separate rules regarding the maximum amount of time a life insurance company can take to process a death claim. Therefore, it is recommended to notify the life insurance company and file a claim as soon as possible to initiate the process promptly.

Payout methods

Life insurance policies offer a payout known as a death benefit, and the amount paid out depends on the type of policy held. The death benefit can be paid out in various ways, including:

Lump Sum

The most common type of life insurance payout, a lump-sum payment provides the beneficiary with the entire death benefit in one single, usually tax-free payment. This method provides immediate access to the full amount, which can be crucial for covering significant expenses or debts. However, this option can also be risky if the funds are not properly managed. If the payout exceeds $250,000, it may be necessary to place the funds into multiple accounts.

Installments

Beneficiaries can choose to receive the death benefit in installments over a fixed period or for their lifetime. This option can provide a steady income stream, making financial planning easier. 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 taxable.

Life Income Annuity

With a life income annuity, the beneficiary receives fixed, regular payments for life. The insurer calculates the payment amount using the beneficiary's estimated life expectancy. Payments may be smaller for people with long life expectancies, but this payout method may be preferred by those who aren't comfortable managing large windfalls. 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.

Fixed-Period Annuity

In a fixed-period annuity, the death benefit is paid out over a specified period, such as 10 or 20 years. The insurer divides the death benefit by the number of payments to get the payment amount, which is typically higher than a life income annuity. If the beneficiary dies before the end of this period, their designated beneficiaries can continue to receive the remaining payments.

Retained Asset Account (RAA)

A retained asset account is an interest-bearing account where the insurer holds the death benefit and provides the beneficiary with a checkbook or debit card linked to this account. The beneficiary can then access the money as needed, similar to a regular checking or savings account. They also have the option to leave the funds in the account and earn interest on the balance. This method may be a good option for beneficiaries who are not comfortable managing a large lump sum of money.

Frequently asked questions