Life insurance is designed to give the insured peace of mind, knowing that their beneficiaries would be taken care of financially, should the unthinkable happen. While most people focus on taking life insurance coverage and making payouts, very few ever take time to understand the payout process.
Below are some of the things to keep in mind with regard to the life insurance payout process.
A life insurance policy remains in force as long as the insured is alive. In this case, premiums must be made to safeguard coverage and ensure death benefit once the inevitable happens. Once the insured passes on, the insurance company is obliged to reimburse the beneficiary as agreed in the policy terms.
However, it is the responsibility of the beneficiaries to make a claim with the insurance company. One of the requirements of making a life insurance policy claim entails presenting a copy of the insured’s death certificate.
Some insurance companies require beneficiaries to file benefits claims before they can process the death benefit. In some instances, the life insurance claim process can be complex entailing the submission of documents detailing how the death occurred as well as the cause of death.
Once a claim is made and all the necessary documentation is filed, an insurance company will start the payout process by ascertaining the validity of the documents. A life insurance company can take time to ascertain the validity of the documents in a bid to ensure all the terms of the life insurance policy are met. The investigation process may involve obtaining additional information from the police or medical records as a way of ascertaining the true cause and nature of death.
The payout process usually takes time as insurance companies try to ensure that no fraud has been committed. For instance, an insurance company may back out from making a payment if the insured died while committing a crime. Conversely, a payout may take months or even a year as the insurance company tries to ascertain the circumstances surrounding the death of the insured.
If the insured died within the first six months of taking the life insurance coverage, beneficiaries may have to wait even a year before receiving the death benefit. Because the death occurred so soon, the insurance company may take time to investigate whether the insured took the policy intending to commit fraud.
An insurance company may decide to delay the benefit payout until a term life insurance matures should the insured die within the first two years of the life insurance policy. The delay in payment is usually part of a long process that seeks to ensure the beneficiary genuinely deserves the payout, and no fraud was committed.
Beneficiaries can expect to receive the death benefit anywhere from a couple of weeks to 45 days, once an insurance company ascertains everything to be in order. In the U.S, there are state laws that specify the maximum amount of time that an insurance company can take before making payments.
The death benefit is normally sent to the beneficiary in the form of a bank check unless the beneficiary states otherwise. It is also important to note that payout is only made to the person or people specified in the life insurance policy. Once the insured passes away, it is impossible to change the beneficiary status.
Contrary to perception, there are many options as to how an insurance company can make payments on a death benefit.
A preferred option for most people, it involves an insurance company settling death benefit with one single deposit into a beneficiary account.
With installment payments, the beneficiary reaches an agreement with the insurance company for the death benefit to be paid in installments. In this case, a beneficiary can agree to 20% of the death benefit to be made every year for five years. The option allows beneficiaries to earn interest on unpaid amounts.
The straight life income option sees insurance companies making periodic payments that last the rest of a beneficiary life. The payments, in this case, can be made monthly, quarterly, or yearly.
The interest-only payment approach acts as an investment plot whereby the insurance company only pays the interest accrued on the total death benefit.
The best thing you can do to make sure your beneficiaries are paid is to keep all the information on hand. When done right, the payout comes in a timely manner. The longest part is usually figuring out which policy was owned which can make a painful situation more stressful.
ABOUT MACK DUDAYEV
Mack is the owner and life insurance expert at InsureChance. On a mission to create a way everyone can understand, afford and attain the right life insurance coverage to protect their financial responsibilities.