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When you purchase life insurance, you pay the premiums for years or decades, and your beneficiaries collect the benefits when you pass away. It is important to tell your beneficiaries about the policy so they file a claim with the insurance company after your death.
How Are Death Benefits Collected?
Life insurance benefits are typically paid out when the insured person has died and the beneficiaries file a claim with the insurance company. They will be required to submit the appropriate paperwork, as requested by the insurance company, along with a certified copy of the death certificate. This can usually be obtained through the county in which the insured person died, or from a hospital or nursing home. If the policy is owned by a trust, the insurance company will also need a copy of the trust document identifying the owner and the beneficiaries.
When Are Death Benefits Paid?
In many states, the insurance company is allowed 30 days to review the claim, after which the company can pay the benefits, ask for additional information, or deny the claim. Most insurers pay death benefits within 30 to 60 days from the date the claim was filed. They are motivated to pay life insurance claims promptly after receiving proof of death to avoid interest charges for delaying payment.
What Circumstances Could Delay the Payout?
- Fraud Investigation or Suicide: Payment could be delayed for six to 12 months if the insured person died within one or two years after the policy was issued. Most life insurance policies contain a one-to-two-year contestability clause that allows the insurer to investigate the original application to rule out the possibility of fraud. If there is no evidence of fraud found, death benefits are usually paid. Benefits could also be denied if the insured committed suicide within the first two policy years.
- Homicide Listed as Cause of Death: Another situation that could cause a delay in payment is when homicide is listed on the death certificate as the cause of death. In this case, the beneficiary would need to be ruled out as a suspect by law enforcement before benefits could be paid. If the beneficiary is a suspect in the homicide, the benefits are held until the charges are dropped or the beneficiary is acquitted.
What Are the Options for Payout
Payout of death benefits to beneficiaries has almost always been in a lump sum. This is the default option on most life insurance policies. However, modern life insurance policies provide additional payout options, including an installment or annuity option in which the proceeds of the policy along with accumulated interest are paid out at regular intervals throughout the life of the beneficiary.
This option allows the policyholder to choose a guaranteed, predetermined stream of income over a period of five to 40 years for his or her beneficiaries. This helps guarantee that the money will last for the necessary number of years. No matter your situation, our experienced agency can help you select the best payout option for you.