Life insurance has become one of the most popular long-term financial planning tools. To use it effectively, you need to know how and when life insurance payouts are made to beneficiaries and how quickly benefits will be paid.
This article will help you understand what to expect when you file for death benefits and most importantly when you should seek legal help if the claims process does not go as smoothly as it should. Since life insurance claims get delayed or denied very frequently for various reasons, delays in getting a life insurance check are very common.
We have helped many people who have had difficulties collecting their life insurance death benefits by guiding them through the process of filing a claim, expediting a delayed claim, and appealing a denied claim. If you are in a similar situation, do not hesitate to call us at (888) 510-2212 for a free consultation with one of our lawyers.
How Life Insurance Policy Payout Works
After the insured dies, the life insurance proceeds go to the beneficiaries listed on the policy. Once they file a claim for the death benefits, the insurance company will review the policy and, if they find no reasons to deny the claim, will issue the payout.
Who Gets the Life Insurance Payout
Life insurance companies can only pay the proceeds to those listed as beneficiaries since the life insurance policy is a legal contract. Policyowners can name anyone as a beneficiary, from their spouse or ex-spouse to children, siblings, parents, business partners, a charitable organization, or a trust. Whoever they choose, beneficiary designations need to be very clear and follow the requirements of the life insurance policy. When no beneficiary is named on the policy, the life insurance proceeds will either go to the estate or will be distributed to the next of kin. If you are the sole beneficiary, you will receive the entire death benefit. If there are multiple beneficiaries, each will get their allocated share.
An improper beneficiary designation or change can lead to beneficiary disputes which will cause payout delays. Contesting a beneficiary designation is too complex and stressful to go through without an attorney, especially while you are grieving from the loss of your loved one. In such cases, you need the assistance of an experienced life insurance lawyer who can guide you through the process.
Filing a Claim for Death Benefits
Every life insurance policy has a provision outlining a procedure for submitting a claim. It usually describes how long you have to file a claim for benefits and how it must be filed. It specifies such details as the deadline for submitting a new life insurance claim, notice of claim, and proof of loss.
It is best to contact your life insurance company as soon as possible after the insured’s death. The claims representative will let you know which documents are needed to review the claim. In order to expedite the claim payout, those documents must be produced quickly. The beneficiary must have a certified copy of the death certificate and all supporting documents ready when filing a claim.
A claim delay often happens when an insurer cannot get a copy of the original death certificate from the beneficiary or if they do not receive all the documents they require.
Read our guide to learn more about the steps you should take to correctly file a life insurance claim and ensure your death benefits are paid in a timely manner.
How Soon Death Benefits Are Paid Out
Life insurance companies pay out the proceeds when the insured dies and the beneficiary of the policy files a life insurance claim. You should be able to collect the life insurance payout within 30 to 60 days after you have submitted the completed claim forms and the supporting documents. However, insurers are notorious for finding reasons to unreasonably delay and even deny a valid life insurance claim.
If you want to learn what you need to do to get your life insurance check fast, read our blog about how long it takes for insurers to pay out.
What Can Delay Your Payout
There are several reasons life insurance companies delay claims.
Two-year contestability clause
If the policyholder dies within the first two years of the policy issue date, the insurance company must contest the policy. Life insurance policies contain a provision stating that the insurer is entitled to go back and review the life insurance application documents to make sure the policyholder did not make any material misrepresentation. If the insurer cannot prove that the insured made a misrepresentation on the application, the life insurance proceeds will be paid out promptly. Contesting the policy may take up to a year or even longer. In some cases, the claim may not be paid at all and the beneficiary may have to resort to litigation to recover his life insurance payout. You can read more about this in our article about the life insurance contestability period.
If a life insurance policy contains a suicide clause, the insurer may refuse to pay the claim in case the insured committed suicide. Investigating the insured’s death may take several months and may also result in an unusual claim delay.
Another situation that may delay a claim payment is when the insured died as a result of homicide. If the death certificate lists homicide as the cause of death, the insurance company will require the detective to provide a statement about the circumstances surrounding the insured’s death to make sure the beneficiary is not a suspect. If the beneficiary is a suspect, the insurer will delay paying the claim until the beneficiary is acquitted of the crime. In case of an accidental death policy, a homicide investigation must conclude before the insurer will issue a payment. This happens because most accidental death policies exclude from payment situations where the insured participated in a felony or an illegal act at the time of their death.
To avoid an unfair delay of death benefits, please consult with one of our life insurance attorneys. We can work with you to evaluate your case and help you expedite the payment on the delayed claim. We have successfully handled all the situations described above for life insurance beneficiaries.
Below are some delayed claim cases that we resolved in favor of the beneficiary:
- We expedited a delayed claim where the insured died during the contestability period;
- We were successful in collecting a claim denied due to fraudulent beneficiary designation;
- We collected $500,000 for a claim delayed because the insured died in a foreign country.
If you need assistance with a delayed claim, call us at (888) 510-2212 to get a free consultation with one of our attorneys.
How Is Life Insurance Paid Out to Beneficiaries: Death Benefit Payment Options
Usually, the beneficiary receives a lump sum payment when the entire amount is paid as a single check. Recently, however, many other options of providing full payment have become available. Below are some common life insurance payout options available:
- Personal Transition Account. This account is a type of lump-sum payment option available to beneficiaries who prefer to keep their money in a special account that earns interest with a guaranteed minimum rate and gives them full access to the benefit through a draftbook/checkbook. The beneficiary can use the draft book to withdraw the full balance of the account at any time or draft smaller amounts. This payment option allows beneficiaries to consider long-term financial decisions while having full access to the total amount.
- Proceeds Held at Interest. This option is similar to the Personal Transition Account in that the insurance company holds the money that earns interest at a declared rate. Beneficiaries have full access to the entire proceeds at any time.The difference is that the interest is usually higher and withdrawals must be $100 or more.
- Annuity Options. This is a deferred payment option, which pays out the proceeds over a period of time. Under annuity options, payments will be made to beneficiaries in equal installments and continue until all proceeds and interest are exhausted. Annuity options may be for a fixed amount (equal payments are paid until the balance is exhausted) and for a fixed period (equal installments are calculated and paid over a certain period of time.)
- Annuity Options with Life Contingency. Under this option, payments continue for as long as the beneficiary lives and the amounts paid may end at the time of death or continue for a guaranteed period to a survivor.
Receiving Your Life Insurance Money
If a life insurance claim is paid, the insurance company will give the beneficiary a choice of either receiving a lump sum payout or having the funds deposited into a special account set up by the life insurance company. The beneficiary has the right to request interest on the total payout if the claim was not paid within a reasonable time.
Are Life Insurance Benefits Taxable?
Generally, life insurance proceeds beneficiaries receive due to the death of the insured person are not included in income and do not need to be reported. However, interest on the proceeds is taxable and must be reported as interest received. It is best to consult an accountant or a tax attorney when you have questions about life insurance taxation.
Consult with a Life Insurance Attorney if Your Payout Was Delayed
Life insurance benefits should be paid in a timely manner. Consult with a lawyer specializing in the field of life insurance law, an attorney who will understand the financial difficulties you are going through after a loved one’s death. We are here to help and advise you of the best course of action.
We offer free consultations and work on a contingency fee basis, which means there is no legal fee unless you win and receive your life insurance payout. If you or someone you know have issues with a denied life insurance claim, call us at (888) 510-2212 to speak to one of our lawyers.