Updated June 8, 2018: Life insurance is a strange animal: You buy it in hopes that you never have to use it.
It’s also strange in that if you do have to use it, it’s not actually you who uses it. It’s your life insurance beneficiary (or beneficiaries). That’s why you can sit this article out.
We’re going to have a talk with your beneficiary instead. Hello, life insurance beneficiary! Losing a loved one is never easy, but falling into financial hardship just makes the whole ordeal more difficult.
Claiming a life insurance policy can take at least one worry off of your mind, and you’ll ensure that the policyholder wasn’t paying benefits all those years for nothing.
The good news is that claiming a life insurance policy is pretty basic once you know what you need to do, and that’s exactly what we’re here to teach you. (We can also help you quickly compare life insurance for your own policy here.)
Contact the insurance company
You’ll need to get in touch with the insurance company that issued the life insurance policy to let them know of the death so that they can pay out the death benefit. As with many things, being prepared beforehand will make the process much smoother and prevent delays in getting your much-needed financial support.
There are three documents you’ll need to have in order to claim a policy’s death benefit.
1. Death certificate
The insurer will need a certified copy of the policyholder’s death certificate. This proof of death ensures that policies are being claimed legitimately and helps prevent fraud.
2. Policy document
The policy document has all of the pertinent information about the life insurance policy: the term, the death benefit amount, policyholder details, and so on. The insurer will cross reference this with their records to make sure you’re making a claim on the correct policy.
Sometimes it can be difficult to make a claim because you can’t find the policy document, or you weren’t aware of someone having a life insurance policy in the first place. As of 2013 there was an estimated one billion dollars worth of unclaimed life insurance benefits in America. If you can’t find a policy or are unsure if there is one, there are a few steps you can take.
First, contact any insurance companies you know the deceased had other policies with, such as health insurance. If you’re unsure of that, contact as many insurers as you can. (You can find a list of popular life insurance companies here.)
If you can’t find the policy document, you may be able to find proof of premium payments that can help narrow your search. Policyholders often pay their premiums annually instead of monthly, so be sure to check for payments at the start of the year.
You can also contact your state’s insurance department, as they may be able to shed some light on things.
For more tips on getting to the bottom of a lost life insurance policy, check out these seven steps you can take.
It’s possible that the deceased had a group life insurance policy through work or another organization instead of (or in addition to) a private policy. If you know or think that there might be a policy through a group plan, be sure to claim that as well.
3. Claim form
Also known as a "request for benefits," you’ll use a claim form as your official...well, request for benefits.
Claim forms are very straightforward. You’ll fill out information regarding the policyholder, including things like the policy number and cause of death.
You’ll also fill out information about yourself as the beneficiary. This form will be sent, along with the death certificate and policy document, back to the insurer, and they’ll take it from there.
Here’s what the insurance company does
Once you take care of things on your end, the insurance company will process your claim. The first thing they’ll do is perform a few basic checks. They’ll make sure that you are, in fact, the beneficiary assigned to the policy so that they aren’t paying out to the wrong person. They’ll also make sure the policy in question is still in force, or active; you can only make a claim on a policy that’s currently in force, so if premiums had stopped, or it’s a term limit that had reached the end of its term already, you won’t be able to make a claim.
Depending on how long it takes to go through this check, and insurer can pay out a death benefit within a few days, but it can take as long as 30-60 days depending on delays (more on that below). Insurers want to pay out as quickly as they can, though, to avoid interest charges on unpaid death benefits.
Of course, just because an insurance company wants to pay out a death benefit quickly doesn’t mean they always can. There are a few things that can delay the process.
Most life insurance policies have what is called a contestability period. This typically lasts two years from when the policy goes into effect and exists to protect the insurance company from fraud. It allows the insurer to make sure the information provided to them during the application process is true and wasn’t misrepresented in favor of the policyholder.
The life insurance policy may also have a suicide clause that states that a death benefit will not be paid out in the case of suicide. This usually lasts during a two year window as well (although it’s different from the contestability clause), so if suicide is suspected, the insurer may wait until it’s ruled out before paying anything out.
Finally, homicide can delay a payment. Spouses are often named as beneficiaries (for obvious reasons) and if you’ve ever watched a Lifetime movie or any episode of Law & Order you know that the spouse is always the first suspect when there’s foul play involved. The insurance company will wait until any beneficiaries are cleared of any wrongdoing before paying the death benefit.
So you’ve gotten all of the necessary paperwork to the insurer and there weren’t any issues (or there were, but they were ironed out, hopefully quickly). Now you can get the death benefit and make sure your needs are taken care of.
Depending on the insurer and the plan there are a few different ways you can choose to receive the money, but the two simplest and most popular are lump sums or installments.
1. Lump sum
With lump sum payments you’ll get the entire death benefit at once. The benefit of this is that you won’t have to worry about needing to find other ways to pay for the funeral, a mortgage, and so on. You’ll have the full death benefit (tax free) and you can use it as you need. However, some people don’t like this option, as it means having to manage a large amount of money at once, which can be overwhelming.
2. Installment or annuity payout
Installment payouts have been picking up steam in recent years. With this type of plan, you’ll be paid incrementally throughout your life, typically over the course of between five and forty years. Many people prefer this type of payment because it spreads the money out over time, ensuring that they have a steady stream of income replacement.
We hope you don’t ever need to follow these instructions, but if you do, you now have an idea about where to start. Taking the proper steps to claim a life insurance policy can make a difficult time easier, and every little bit counts.
Got more questions about how life insurance works? Visit our Life Insurance Learn Center.