The loss of a loved one is devastating, and the life insurance claim process may only add to that feeling of grief and finality. But try to take solace in knowing that your departed loved one had a life insurance policy to help you during this difficult time.
Let’s take the life insurance claim process step by step so you know what you need to do.
Step 1: Determine Which Life Insurance Company Holds the Policy
A life insurance company doesn’t automatically pay out a death benefit when a policyholder dies. You need to file a claim, which is why it’s vital for policyholders to let beneficiaries know that life insurance policies exist. If they don’t know the policy exists, beneficiaries won’t know they’re owed a death benefit.
Filing a life insurance claim is much easier if you know the life insurance company. Knowing the company removes one significant barrier in filing a claim.
But what if you can’t find any information about a life insurance policy? Here are tips from the California Department of Insurance:
- Review the person’s bank accounts and canceled checks to see if there are payments to a life insurance company.
- Look through the deceased person’s records, including safety deposit boxes, for policies.
- Contact the person’s previous employer to see if the deceased had a group life insurance policy through the company.
- Review income tax records for information about a life insurance policy.
- Check with your state’s Department of Insurance and see if they have a database or can help you track down the information.
- Try to track down the information using the National Association of Insurance Commissioners’ Life Insurance Policy Locator Service.
While it makes sense to file a claim quickly, you can still be paid many years later, provided the policy was active at the time of death. Insurers in many states are now required to check their policyholder lists against the Social Security Administration’s “Death Master File,” which catalogs U.S. residents who’ve died, and make good faith efforts to find the beneficiaries. Many people are finding out this way that they are owed money.
Step 2: Obtain the Death Certificate
A certified death certificate is needed to file a life insurance claim. You can usually get a certified death certificate from a local health department, and the funeral home may help you track that down. It’s wise to get multiple certified death certificates, which you may also need to close accounts and utilities.
The life insurance company will likely want a certified copy of the death certificate and not a copy.
Step 3: File the Claim with the Life Insurance Company
Once you have the death certificate, you can file a life insurance claim. This can often be started online. If you don’t have an online option, contact the life insurance company directly.
In addition to the death certificate, you likely need information like:
- Name of insured
- Date of death
- Cause of death
- Place of death
- Your name
The life insurance company will take that information and review the claim.
Step 4: Choose How to Get the Life Insurance Payout
You’ll typically choose one of these ways to get a life insurance payout:
- A lump sum. A lump sum option gives you and other beneficiaries the whole amount all at once. No need to worry about taxes because a life insurance benefit is generally tax-free.
- Specific income. You can have the insurer pay you the death benefit on a schedule, over a certain time period. Any interest earned would be taxable.
- Life income. The life income option gives you income for life, but the amount varies by the death benefit and beneficiary’s age and gender.
- Interest income. This option has the insurance company pay you interest on a policy and not pay the death benefit. The death benefit goes to a different beneficiary when you die.
How Long Does it Take to Get a Life Insurance Payout?
A life insurance claim payment can happen relatively quickly, no matter if it’s a term life insurance, whole life insurance or universal life insurance policy.
“Generally, once all the claim requirements are received in good order, a settlement is processed within seven to 10 business days,” says Amanda Wallace, head of insurance operations at MassMutual.
For example, Haven Life strives to pay death benefits within 24 hours of receiving a qualified claim. Northwestern Mutual takes five to seven business days to review a claim. In any case, a life insurance payout could be quick if you know which company issued the policy.
Potential Problems with the Life Insurance Claims Process
A life insurance claim process is pretty straightforward, but there’s a chance you may face speed bumps, including a denied life insurance claim.
Here are a few potential issues.
You were no longer the beneficiary
A policyholder isn’t obligated to tell you if beneficiaries have been changed. The policyholder may have changed their mind or decided to put the proceeds into a trust, particularly if there are multiple beneficiaries.
If you’re not a beneficiary, finding out who is would require legal action. Life insurance companies do not disclose such information to people who aren’t parties to the life insurance contract.
Even if you go to court you might not be successful unless you can prove a proper procedure wasn’t followed, a beneficiary change was made under duress or someone unduly influenced the policyholder for their own gain.
Policyholder stopped making payments
You might find out that in the last days or months of their life, the policyholder stopped paying premiums and let the policy lapse. If so, don’t hesitate to move quickly to “reinstate” the policy.
Insurers often offer a grace period of 30 to 60 days.
Policyholder dies during the contestability period
A beneficiary can bump up against the two-year window of contestability by the insurer. This could be a problem if the policyholder left out critical information when applying for the policy. For example, if the policyholder bought a life insurance policy without mentioning being a heavy smoker and then died of lung cancer in the window of contestability, the insurer would have the right to void the policy.
Or a more morbid possibility: The person bought the policy and soon after commited suicide. That, too, will void the policy within the first two years after the purchase.
After two years, the contestability issues generally go away. And there’s no time limit on getting paid if you’re owed the money.