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 of receiving 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.
Issues that 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 policies have a clause stating 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, according to the ACLI.
How do you receive life insurance money?
Generally, you can choose to receive a life insurance death benefit in one of these ways:
- 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.
- 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.
- Life-income option: You receive payments for the remainder of your life.
Is life insurance money taxable?
A life insurance death benefit is generally paid tax-free to beneficiaries. However:
- If you receive interest it may be taxable, according to the IRS.
- If the life insurance benefit goes into the 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 the policyholder avoid this situation. Luckily this applies only to very large estates: An estate had to be worth over $11.2 million to be subject to federal estate tax in 2017.
How to 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. 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 what additional information you may need. 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 may receive payment between about seven to 30 days.
Who gets the life insurance money?
The life insurance beneficiary is the person who receives a payout from the life insurance policy. This is typically a spouse or adult children. The insurer can pay out money only to those listed as beneficiaries because the policy is a legal contract.