When it comes to Americans’ top financial concerns, money after retirement leads the list followed by other retirement-related concerns which are long-term care and medical expenses.
These concerns helped build consumer interest in owning a life insurance with 9 in 10 people agreeing on its importance. Most of the millennials (77%) now recommend owning life insurance.
You could be one of those who’s interested in owning a life insurance or who already has one. But, you’re curious to know: how can beneficiaries receive their life insurance payout?
Read on to know more about the process of payouts. We’ve also included some tips to help you and your beneficiaries effectively use this investment.
- How is a life insurance payout claimed?
- Life insurance policies available
- Who are the beneficiaries?
- How long does it take to get a life insurance payout?
- What could deny or delay payouts?
- Payment options
- Tips for getting claims fast
- As the insurance policyholder, you should:
- As the beneficiary, you should:
- Choose the best company for you
How is a life insurance payout claimed?
When a loved one passes away, beneficiaries of the insurance policy can claim a life insurance payout from the insurance provider.
With a life insurance payout, the beneficiaries are protected from a sudden loss of financial support.
Upon the death of the life insurance owner, beneficiaries must inform the event to the insurance company. They will also need to file a death claim and submit a death certificate.
Take note that each state has its own rules about handling claims. It’s best to contact your life insurance provider to know better about the specific steps in claiming payouts.
Life insurance policies available
Life insurance comes in various forms you can’t even expect to be included in certain purchases or memberships.
There are the different kinds of life insurance policies to choose from:
Individually owned life insurance policies
These are the most commonly known life insurance policies. These are good for one person who’ll get the benefits when the insured dies.
There are three basic types under this policy:
- Term life: Also known as pure life insurance, term life lets the beneficiary claim the life insurance payout within a defined term from one to 30 years. If the holder doesn’t die, he/she can’t receive a portion of the premiums.
- Permanent life policy: Whole life: Whole life doesn’t have predefined terms and protects the insured for his/her whole life. This also accumulates a cash value that can be withdrawn or borrowed. This type of policy offers the lowest return rate compared to the others.
- Permanent life policy: Universal life: Universal life’s cash value is determined by short-term interest rates. It provides lifetime coverage, flexible premiums, and flexible death benefits.
Group life insurance policies
Group life insurance policies provide coverage for many people. These policies can be issued through an employer, bank, credit agency, and other professional or social organizations.
Employer-based group life insurance
Employers may offer life insurance for their employees at no cost. Family members can also buy additional life group insurance through the employer and pay for the extra premiums.
Accidental death and dismemberment policy
This policy pays benefits if the insured individual dies through an accident. This can be offered through an employer, credit card, or bank.
Travel accident insurance
Individuals buying tickets or using their credit cards for travel ticket purchase can automatically have travel accident insurance.
This insurance pays to beneficiaries who lost a loved one killed while traveling. Travel agencies and employers can also issue travel accident insurance policies.
Mortgage life insurance
A mortgage life insurance policy pays off the balance of a family member’s mortgage upon his/her death.
Credit life insurance
Credit card companies, banks, and lenders issue credit life insurance for loans. This insurance pays off the outstanding loan balance or account when the insured dies.
Who are the beneficiaries?
You can name more than one beneficiary. But when claiming, all beneficiaries should submit their own claim form.
If the primary beneficiary died before the insured individual, the alternate beneficiary can claim the life insurance payout. The alternate will need to submit death certificates of both the primary beneficiary and the insured.
How long does it take to get a life insurance payout?
After the insurer’s death, beneficiaries can claim payouts as soon as possible as long as they submit death claims and a certified copy of the death certificate.
Depending on the state, insurers can take up to 30 or 60 days to review the claim. After review, they can pay or deny the claim, or ask for further information.
What could deny or delay payouts?
Insurance companies review life insurance claims before paying the insured’s beneficiaries. Not all are paid in an instant and can be denied or delayed.
Claims can be denied or delayed due to the some of these reasons:
The two-year contestability clause
If the insured died within the first two years after the policy was issued, the insurers can delay the life insurance payout for 6 to 12 months. They also investigate the original application to ensure the insured didn’t commit a fraud.
Cause of death: homicide
If homicide is listed down as the cause of death in the insured’s death certificate, the insurance company will conduct further investigations with a detective to ensure the beneficiary isn’t the crime suspect.
Cause of death: suicide
In the suicide clause, no death benefits will be paid if the insured commits suicide within two years after the policy was issued.
The insurance company will ask how the beneficiary would like to receive the benefits.
Here are the different payment options the beneficiary can choose from:
When a beneficiary chooses the lump-sum option, he/she gets the entire payment at one time. It’s tax-free and can be used as much as he/she needs.
If there are loans against the cash value account, these are subtracted from the entire payment.
The life income option allows the beneficiary to receive the benefit in guaranteed payments over the remainder of his/her life. These yearly payments will only stop when the beneficiary dies.
Life income with period certain
In the life income with period certain option, the beneficiary can choose among different periods. Here, he/she can receive payment for 5 years, 10 years, or more. The longer the period, the lesser the payment.
Joint and last survivor life income
In this option, the beneficiary can elect a joint beneficiary who will also receive payment. Payments here are guaranteed until the death of the last beneficiary.
In the specific income option, the insurance company will follow the beneficiary’s proposed schedule. If the beneficiary dies before the period ends, a second beneficiary will receive the remaining payments.
The beneficiary can request to only receive the interest earned on the life insurance payout. The original amount of benefit is paid to a secondary beneficiary at a certain age after the primary beneficiary’s death.
Some life insurance companies created policies for insured individuals to be the beneficiary in the event of a terminal, chronic, or critical illness.
Tips for getting claims fast
Life insurance companies will always make sure that every claim is valid. Don’t be surprised when a claim will take months before it is paid.
Do you want to be sure you’ll get paid immediately without any troubles? To avoid delays and denied claims, the insurance holder and the beneficiaries can do the following:
As the insurance policyholder, you should:
Read the policy carefully before signing
Make sure to fully understand the policy and clarify what’s included or not in it.
Ensure you’ve written up a Last Will and Testament
Clearly state what should be done with your life insurance when you pass away.
Never name a minor child as a beneficiary
Child beneficiaries can only receive their benefit when they reach 18. Before adding a beneficiary, create a trust which states the age when a beneficiary can receive the money and where the money can be used.
Compare term life quotes
Talk to a financial expert to know which between the term life or permanent life insurance is best for you.
Check for living benefits
Having living benefits lets you have access to your money while you’re still alive. This can be handy when you need to pay unexpected living expenses or medical care.
As the beneficiary, you should:
Get that original death certificate ready
Order enough original copies of death certificates. Life insurance companies prefer to keep the original as a valid proof of the insured person’s death.
Contact your life insurance company right away
Whether through calls or emails, you should let your agent and insurance company knows immediately about the insured’s death and your claim.
Make sure you have complete requirements
For the requirements, you can have the basics such as the claim form, the original death certificate, and the original policy. The companies can ask for other requirements such as police reports.
You can ask the insurance company about the requirements before submitting anything.
Choose the best company for you
Applying for a life insurance and receiving life insurance payout will be a breeze if you find a life insurance company that is best for you; depending on your age, job, and needs. It can be tricky with the various choices out there.
But don’t worry anymore as we highly recommend you to use this online quote comparison tool. Go ahead and try it to have an instant list of the cheapest up to the highest life insurance companies that can provide your preferred policy.
If you’ve any questions regarding life insurance policies, contact us.