How Life Insurance Payout Works: What Beneficiaries Must Know About Receiving Death Benefits
- Tatiana Kadetskaya
Life insurance has become one of the most popular long-term financial planning tools. To use it effectively, you need to know how and when life insurance payouts are made to beneficiaries and how quickly benefits will be paid.
This article will help you understand what to expect when you file for death benefits and most importantly when you should seek legal help if the claims process does not go as smoothly as it should. Since life insurance claims get delayed or denied very frequently for various reasons, delays in getting a life insurance check are very common.
We have helped many people who have had difficulties collecting their life insurance death benefits by guiding them through the process of filing a claim, expediting a delayed claim, and appealing a denied claim. If you are in a similar situation, do not hesitate to call us at 510-2212 for a free consultation with one of our lawyers.
Each State Has Different Laws
Every State individually regulates life insurance companies operating within their jurisdictions. To learn the rules in your specific state regarding the handling of claims and to see how long your life insurance claim will take, read our state page section. While each state has separate rules regarding the maximum amount of time that a life insurance can take to process a claim, most companies will pay claims faster if the right steps are taken.
What Is Cash Value In Life Insurance
A cash value feature in life insurance typically earns interest or other investment gains and grows tax-deferred.
With cash value life insurance, your premium payments go three places:
- Into the cash value.
- Toward the cost of actually insuring you.
- Toward policy fees and changes.
So only a portion of what you pay is going to end up in cash value.
You have several options if you want a cash value life insurance policy. Each policy type accrues cash value differently, but in all cases you can get to your cash value with a loan, withdrawal or surrender.
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What Are The Payout Choices
Most coverages will allow you to withdraw the death benefit amount in a lump sum or a monthly payment. Depending on the benefit amount, and your financial goals and debts, you may choose a monthly payment option. Generally, the lower the amount , the beneficiary elects to have this as fast as possible, since there are burial and other expenses associated with death. For the larger amounts, some choose tax-deferred investment vehicles.
For those who choose not to get a lump sum payment, they can pick an annuity payout which includes:
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Types Of Life Insurance Payouts
There are several ways a beneficiary can receive the death benefit from a life insurance policy. The most common is the lump sum payment. As the name indicates, this is a single payment, usually in the form of a check, that is given to the beneficiary once the amount has been approved by the insurer. That single payment would be for the entire amount of the death benefit, minus any outstanding loan amounts, if applicable.
The beneficiary may also be able to choose an installment payment of the death benefit, usually in the form of an annuity. An annuity is the periodic payment of a sum of money over an extended period of time. Some beneficiaries prefer annuities as a way of receiving a continuing income for a longer period of time.
A third option allows the insurer to function like a bank account, holding on to the death benefit until its needed. The insurer would issue a checkbook to the beneficiary, so they could draw on the money as needed.
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The Policyholder Committed Suicide
In addition, the majority of life insurance policies have a suicide clause. This voids the death benefit if the policyholder commits suicide within two yers of opening the policy. If the company suspects suicide, they could open an investigation. Read more about life insurance payouts for suicide here.
What Is A Life Insurance Death Benefit
A life insurance death benefit is a sum of money your beneficiary receives when you pass away. Your beneficiary is the person who you elect to receive your moneyusually your spouse, children or other living heirs. When your beneficiary receives the death benefit, they can use the money however they want to.
After a loved one passes away, their beneficiary usually puts some of the death benefit towards funeral expenses or debts the deceased had. The remainder of the money can be used at the discretion of the beneficiary. The funds can be invested, donated, spent as income or even used to take a vacation.
When you purchase life insurance, youre purchasing a policy for the death benefit. For example, suppose you choose to buy a $1,000,000 life insurance policy. In that case, it means your death benefit is $1,000,000, and the insurance company agrees to pay your beneficiaries that amount when you pass away. The more coverage you have, the more money your monthly premium will cost.
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How Fast Will My Claim Pay Out
Once you file your life insurance claim, most insurance companies will pay out quickly.
Following the claim process correctly and promptly providing the necessary documentation will increase the likelihood of a faster payout.
Because most life insurance policies gain interest over time, companies want to issue the death benefit as soon as possible. But, on average, how long does it take for life insurance to be distributed?
Most insurance companies will issue the death benefit within two weeks of the policyholders death. You may have to wait up to 30 days for a payout, but you will usually receive it much sooner.
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What Is The Role Of An Underwriter In An Insurance Company
An underwriters main role is to ensure that applicants are charged the appropriate premium for the desired level of insurance coverage. Insurance underwriters are responsible for getting the appropriate information from an applicants medical records, credit history, driving records, and more, and then using this information to determine the risk an applicant poses to an insurance company (i.e. what the chances of them dying before the end of the policys term.
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Type Of Life Insurance Policy
Depending on the type of life insurance policy you are looking to open, there may be a longer waiting time and processing time associated with it.
A solid example of this are whole life insurance and indexed universal life. Both of these policies can take longer in the underwriting process because they are policies that cover someone for life. Inherently, this presents a whole new set of risks for an insurance company, and as a result, they do their due diligence in order to ensure they secure the best premiums for applicants while still protecting themselves based on your risk profile.
Your Life Insurance Policy Has Been Approved
Once your medical records have been received and reviewed by the underwriter and all requirements that were needed for the underwriter to make a final decision have been received, final medical underwriting approval will be made.
If your policy has been approved as applied and there are no changes to be made, it will be sent to issue and mailed to the agent. This will all happen within 24-48 hours of acceptance of the final offer.
Once your agent has received your policy you will be asked if you would like it sent to you electronically or by mail. Along with the policy will be an invoice for the initial premium payment and any additional paper requirements that may need to be signed in order to place your policy inforce. Be sure to get these back to your agent as quickly as possible as there will be a deadline date for these requirements to be received.
Have you ever wondered how long does it take to get a life insurance policy? Hopefully here at Top Quote Life Insurance, we will be able to provide you with a couple quick and easy tips about how to speed up the process to get your life insurance policy underwritten, issued and inforce. We will do our best to answer your question about how long does it take to get a life insurance policy and keep you informed throughout the process.
Looking to compare life insurance policies? We can help. Enter your ZIP code to get free quotes from multiple insurers.
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Uncertainty Of Beneficiary Status
While its always a good idea for insured adults to let loved ones know that theyre a beneficiary of a policy, that doesnt always happen. If youre not sure whether youre in line to receive a payout, you can also double-check by going online and using the National Association of Insurance Commissioners Life Insurance Policy Locator Service, which searches all of its member companies for matching policies.
Though the service is free, it can take up to three months to hear back. Therefore, its a process you probably want to start only after scouring the deceaseds personal records for more-concrete information about their policy.
Even if you dont contact the insurance company, theres a good chance it will find out about the policyholders death eventually. Thats because insurers in some states are required to regularly cross-check their list of customers against the Social Security Administration Death Master File . When they find out about the death through that process, theyll contact any beneficiaries, although it may take substantially longer this way.
When Does Term Life Insurance Payout
Term life insurance is a popular part of long-term financial planning. To effectively incorporate a term life insurance policy into your financial portfolio, you must understand how and when term life insurance payouts are delivered to beneficiaries. This includes understanding how quickly benefits will be paid and designing a policy with the payout option that works best for your financial planning.
Typically, term life insurance benefits are paid when the insured has died and the beneficiary files a death claim with the insurance company. Many states allow insurers 30 days to review the claim after receiving a certified copy of the death certificate. Then insurers can payout benefits, deny the claim, or ask for additional information to process the claim.
The default payout option of most term life policies remains a lump sum check. You should work with your insurance agent to determine which payout option would best for your situation since the type of insurance policy you own can affect the payout process.
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How Long Does It Take To Get A Life Insurance Payout Or Check
After the death of a loved one, many details must be attended to during this difficult time. If youve been made the executor of a will, you can be responsible for maintaining due diligence of an estate. This includes obtaining multiple copies of the death certificate, making final arrangements with the funeral home, and dealing with the mounds of paperwork pertaining to the deceased.
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One of the documents that is typically at the top of the pile is a life insurance policy with the deceased named as the insured and usually loved ones being the beneficiaries. However, the beneficiary can also be a charity or business partner
Beneficiaries often need to receive the life insurance proceeds quickly if theyre responsible for funeral and burial costs, as well as needing funds for living expenses if the deceased was contributing to the familys income.
Though having a life insurance policy is great, it can be daunting to use it as intended, which is to receive benefits after a loved ones death.
How Do You File A Claim For Life Insurance
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How To File A Life Insurance Claim
Insurance claims dont happen automatically with the death of the insured. A beneficiary of the policy will need to file a life insurance claim. It is relatively simple, but the beneficiary will need a few documents to file the claim.
Documents Needed to File a Life Insurance Claim
- Death Certificate of the Insured
- The funeral director of the insured can provide a certified copy.
- Copy of the Life Insurance Policy
- The policy number and beneficiary information can speed the process.
- Insurers Claim Form
- Most can be filled out online, but some insurers require people to print out a copy and mail it to the company.
It is important to notify the insurance company as soon as possible after the insureds death because processing the claim and making a payout can take several weeks.
What If I Lie About Smoking For Life Insurance
You could be denied a life insurance policy if you lie on the application about your smoking habits. Many insurers require a life insurance medical exam that includes blood samples and urine tests that screen for nicotine use. You could also be denied if you have medical conditions in addition to smoking.
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There Are No Time Limits But There’s Still No Reason To Delay Claiming
How long does a beneficiary have to claim on a life insurance policy? For any number of reasons, people delay claiming the death benefit from a life insurance policy. In some cases they may not even know theyre the beneficiary of a loved ones policy. But if months or years have passed since the policyholders death, should the beneficiary worry about losing out on the benefit?
The short answer is no. There isnt any time limit when it comes to claiming a life insurance payout. As long as the policy was active at the time of the insured individuals passingthat is, the premiums were paid and there are no grounds for the insurance company to dismiss the claimyoull get the money. However, if youre hoping to get a timely payout, its better to file earlier than later.
The Life Insurance Company Is Unable To Locate The Policys Beneficiaries
There might be one or both of two problems in this scenario. The first is that the descriptions of the beneficiaries might be insufficiently precise for the life insurance company to locate them. This would be the case, for example, if the beneficiary designation says my wife or my children without naming them specifically and, ideally, providing a Social Security number and a current address for each one.
Be sure to provide detailed personal identification information about every beneficiary to each life insurer from whom you have coverage for death benefits so that they can easily be located and their identity confirmed.
The other problem is that, even if the company knows who it is looking for, it may be very difficult to track down a beneficiary, especially as it may be many years, or even decades, since the policy was taken out. Keep in mind that, for privacy reasons, until the death occurs, the life insurer cannot even respond to a beneficiarys inquiry as to whether they are a beneficiary or not.
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