If you're a life insurance beneficiary, you probably want to know when to expect the money.

Life insurance death benefits are usually paid within 30 days after you submit a claim, according to the American Council of Life Insurers (ACLI), an industry group.

If you have all the necessary documents, you may be able to get payment within about seven to 10 days business days, according to estimates on insurance company websites.

How do life insurance payouts work?

Life insurance payouts are sent to the life insurance beneficiary, typically a spouse or children. Life insurance companies can pay money only to those listed as beneficiaries because the policy is a legal contract.

Is life insurance paid in a lump sum?

Life insurance can be paid as a lump sum, but that’s not your only option. Depending on the company, you may have these choices:

  • Lump sum: You'll receive the full amount all at once.
  • Installments: You'll receive the money over time.
  • Interest option: The insurance company pays only the interest earned, until you withdraw the principal amount.
  • Fixed-period option: The life insurance company pays both the principal and interest for a specified period of time.
  • Fixed-amount option: The life insurance company pays a specified amount on a regular basis until the money is gone.
  • Increasing benefit: The amount paid will increase a certain percentage each year, such as 3%, during the “benefit period.”
  • Life income option: You receive payments for the remainder of your life.


Ways to receive life insurance money

What issues can hold up a life insurance payout?

Some of the common issues that hold up payment are:

  • Incomplete information or documentation: Make sure your claim form is complete and accurate. You'll also need a certified death certificate.
  • The person committed suicide: Many life insurance suicide clauses state that there will be no payment if the person dies from suicide within two years after taking out the policy. If an insurer suspects suicide within that time it may investigate.
  • The person died during a contestability period: The contestability period is typically the two years after the life insurance policy is issued. If the policyholder dies during this time, the life insurance company has the right to investigate the claim. For example, if a person failed to disclose on the application that they had been diagnosed with a heart condition, the insurer might investigate a death due to that problem, according to the ACLI.

Do you have to claim life insurance on taxes?

A life insurance death benefit is generally paid tax-free to beneficiaries. However:

  • If you receive interest paid on the death benefit it may be taxable, according to the IRS. This likely won’t apply if you make a claim right away. But if the insured person died long before you make a claim, the insurer will generally pay the death benefit plus interest,
  • If the life insurance benefit goes into a deceased person's estate, and the estate is large enough to be subject to state or federal estate tax, the death benefit could be taxed as part of the taxable estate. A financial planner can help avoid this situation. This applies only to very large estates: An estate had to be worth almost $11.2 million to be subject to federal estate tax in 2018.

Can life insurance proceeds be taken by creditors?

Generally, life insurance proceeds are protected from creditors and the deceased’s debt cannot be collected from life insurance beneficiaries. However, if the beneficiaries are no longer living, the death benefit might go to the deceased’s estate, which could be subject to creditors.

Consider naming a secondary beneficiary (also called a contingent beneficiary) on your life insurance policy. The secondary beneficiary receives the life insurance money only if the primary beneficiary dies before you.

What happens to life insurance if you don’t die?

You could outlive your policy if you purchased term life insurance. If so, there would be no death benefit payout or refund unless you purchased a special type of policy called a return of premium (ROP), which is more expensive than standard term life.

There are other types of life insurance that payout no matter when you die, such as whole life insurance and universal life insurance.

How do I file a life insurance claim?

1. Know the insurance company name. You don't need the paper policy in hand to start a claim. As long as you know which insurer issued the policy, you can contact the company to start the claims process.

If the person had a group life insurance policy through work, contact the employer's human resources department to find out which company sold the group life policy. If you already know the company name you can contact that insurer directly.

2. Get a certified copy of the death certificate. You can usually get this from the hospital or funeral home. You will have to submit the death certificate to the life insurance company. The ACLI recommends getting several certified copies in case you need them later.

3. Contact the life insurance company. Speak with the claims department. They will be able to walk you through the process and tell you what additional information may be required. They should also be able to tell you how long the claims process will take.

4. Submit the claim. If you provide all of the necessary documentation, you could receive payment between about seven to 30 days.

Not sure where the policy is? Read our story on how to find a lost life insurance policy.

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