No matter the age of your life insurance policy, in most cases, your beneficiaries can claim a life insurance payout on a policy that's active, also known as "in force," but there's a specific process they'll have to use.
Understanding how your life insurance benefits work is an important part of deciding what type of life insurance you want. It's a crucial part of long-term financial planning. It can also provide benefits for your loved ones in the event that you die unexpectedly, even if you've just purchased the policy. However, it’s important to note that in order for your beneficiaries to receive a life insurance policy payout, the life insurance policy must be active and past the waiting period.
How long do you have to have life insurance before it goes into effect?
Life insurance policies typically have what is known as a “waiting period,” which is the time in between when you apply for a policy and when the policy becomes active. The waiting period allows the insurance company time to evaluate your background and health history and finish underwriting your policy. Individual circ*mstances may vary, but the waiting period for life insurance is typically four to six weeks. If you pass away during this waiting period, your beneficiaries will not receive a payout as the policy is not considered active at this stage. To activate your policy, you’ll need to sign your contract and pay your first policy premium.
If you have a policy with a waiting period and die soon after making your first premium payment, your beneficiaries will most likely be covered.* Read on to learn how your beneficiaries can access the death benefit of your life insurance policy, even if you passed soon after making your first payment.
Get a Certified Copy of the Death Certificate
When an insured person dies, their named beneficiaries must get a certified copy of the death certificate. This legal document shows the location, date, and time of death. It also names the cause of death. The person handling the deceased individual's estate will need multiple certified copies of this document to settle bank accounts, close lines of credit, and make insurance claims.
The procedure for getting a death certificate varies by state. If you are working with a funeral home, or your loved one died in a hospital, someone there can help you understand your state's rules for getting copies of the death certificate. They may contact your state or county's health department on your behalf to initiate the process, as well.
Locate the Life Insurance Company and Make Contact
If you know the deceased person's insurance agent, contact them immediately. Otherwise, contact the claims department of the insurance company to get the death claim paperwork.
If you’re having trouble finding the deceased’s life insurance policy, the National Association of Insurance Commissioners (NAIC) has a Life Insurance Policy Locator Service, which may be helpful if you know the deceased person had a life insurance policy, but you aren't sure where to find it or which company to contact. It can take as long as three months to find out if one of the NAIC's participating life insurance companies has a policy in your loved one's name.
Insurance companies must contact beneficiaries when a policyholder dies, but it could take some time for them to find out that the person is deceased.
Fill Out and Return a Death Claim
The life insurance company requires the policy's beneficiary to complete a death claim. To receive the appropriate paperwork, contact the claims department listed in the life insurance policy. If you don't have a physical copy but know the name of the company, call the 800 number listed on their website to ask about filing a claim. To learn more about how to file a life insurance claim, click here.
Wait for the Insurance Company to Review the Claim
In many states, the insurance company has 30 days to review your life insurance claim. During this time, they can submit additional questions, deny the claim, or pay the claim. It's likely that the company will pay the claim as soon as they are able since delaying payment costs them interest charges.
Life Insurance Claim Payout Delays
If the insured person dies within two years of initiating a life insurance policy, the company may invoke a contestability clause. This gives them extra time to investigate the claim.
They will look at the claim carefully to make sure it's not a case of insurance fraud. If the cause of death is suicide or the insured person misrepresented facts in their insurance application, the claim may be denied by the insurance company.
Beneficiaries may have to wait for the insurance company to investigate the death claim. If the cause of death is listed as a homicide, the insurance company will likely work with the police department to confirm that the beneficiary is not a suspect.
Life Insurance Claim Payout Options
If a life insurance policy is in force, the beneficiaries named in the policy should receive the full amount of the death benefit (minus any loans against the policy), regardless of how long the policy existed before the insured person died. This is true whether the insured person has a term or permanent life insurance policy.
A permanent life insurance policy has a savings component included in the policy. If the policy is new, there won't be any accumulated savings. Permanent life insurance policies pay the death benefit to beneficiaries, but money in the savings portion of the life insurance policy automatically goes back to the life insurance company.
While a lump-sum payment of the death benefit is the most common option chosen by most beneficiaries, many life insurance companies offer other options, like annuities and installments. With these options, regular payments may go to the beneficiaries throughout their lifetime, providing financial security. The beneficiary receives interest on the principal balance of the life insurance payout as well.
Life insurance offers financial security for beneficiaries and peace of mind for policyholders. To make the claims process go smoothly, make sure all paperwork is filled out accurately and completely and ask for help from the insurance company representative when necessary.
*Please see your policy for details
