In the event of the insured’s death, the primary beneficiary must file a claim report in order to receive any benefits. This may be a simple process, depending on how the insured left their policy.
If everything was planned accordingly, all you should need to do it contact the life insurance company and the insured’s employer, fill out the necessary paperwork, and provide the insurance company with a certified copy of the death certificate.
However, this may not always be the case.
To help make the process simpler, it is advised to store your policy in an easily accessible place for the beneficiary. Meaning, a safety deposit box may not be advisable as some states seal the box upon the death of the owner.
To cover all of your grounds, it is recommended to obtain several death certificates.
If your policy is part of a group employee benefit program, you should make sure that it is noted somewhere for your beneficiary.
Some types of life insurance policies are with credit card companies or other financial institutions, travel life insurance, mortgage life insurance, accidental death insurance, credit life insurance, and with the Social Security Administration.
Finding these policies may require research and phone calls to lenders, etc., regarding life insurance benefits.
When submitting a claim, the insured may have chosen a payment plan.
If you are not aware of the option, the insurance company will inform you about the option and how it works.
However, if the policy owner has not chosen the settlement option, it will need to be chosen at the time the claim is filled.
There’s no income tax on the death benefit.
You control all the options except for the lump-sum cost. However, if the beneficiary for any reason cannot manage the money, than the other settlement should be considered, unless there is someone who can manage the money for them. This is typically used when the beneficiary is under the age of 18.
The more commonly found settlement options are:
The life insurance company pays the entire death benefit in one lump sum, which allows you to do what you wish with it. Typically, the company will open a money-market account and issue a checkbook.
That way, you do not need to many any decisions until you are ready. There are no restrictions on this account of any type.
Specific Income Provision
You receive from the company both principal and interest on a predetermined schedule.
Life Income Option
You receive a guaranteed income for life. The amount depends on the death benefit, your gender, and your age at the time of the insured’s death.
Interest Income Option
The company holds the proceeds and pays you interest on them. The death benefit remains intact and goes to a secondary beneficiary upon your death.
This is an area where life insurance companies do not act quickly.
If all the paperwork is in order and a death certificate is received, a beneficiary usually receives the death benefit within a week when the life insurance insurer does not act quickly.
If the insured passes away within two years of the life insurance policy’s issue date, the incontestability and suicide clause can come into play. The suicide clause is self-explanatory.
The incontestability clause allows the insurer to challenge a policy for suspected mistruths, such as concealing a condition such as heart trouble and/or passing away from something heart related. This would be ground for denying a claim.
A common occurrence is when someone is a smoker and claims not to be. In this event, the insurer will either completely deny the claim or pay the death benefit, based on the amount of coverage that the premiums paid would have purchased on a smoker basis.
If an insurer does decide to investigate, it can take between a month and a month and a half. Therefore, be truthful and honest when applying for life insurance. Otherwise, you will negate the whole reason for getting life insurance in the first place.
By Tony Steuer, CLU, LA, CPFFE
Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit https://tonysteuer.com/ to join the GET READY! Financial Preparedness Club and access free resources.