Most people find it difficult to talk about death, but it’s always good to ask yourself: Am I prepared when the unexpected demise comes? When it happens, you want to protect the special people in your life by giving them financial security and support. You can do that by having a final expense of life insurance as part of your long-term financial planning.
Here are essential details to help you understand how your life insurance policy will pay out upon passing.
Who Gets The Payout
The beneficiaries you name in your policy are the people who will get the money from the plan after your death. It can either be a sole beneficiary or multiple beneficiaries, including family members, spouses, children, or close friends. You may also assign a primary beneficiary who will be responsible for dividing the life insurance proceeds and a contingent beneficiary who will receive the benefits if something happens to the primary beneficiary.
It’s good to review your chosen beneficiaries every few years and to assess if you want to make changes. Clear about your beneficiary designation can avoid confusion over who can access the death benefit. Make sure to inform your beneficiaries about the policy and to update them on any information and key financial accounts.
Filing A Claim
Beneficiaries must reach out to the life insurance company immediately following the insured’s death to initiate the claims process. They will be required to file a statement of claim or benefits claim form for the company to process and release the money. The paperwork may entail providing a certified copy of the death certificate, other documents like police and medical reports, and a copy of the original application with the policy number.
After your beneficiaries submit all the necessary documents, life insurers will review the circumstances of death and the policy details to determine whether the claim will be approved or denied. It usually takes life insurance companies about 30 to 60 days to process a request.
Payout Delays and Denials
There may be several reasons for delays in life insurance payouts. Claim processing can take longer if the insurance company does not receive all documentation or if they decide to launch an investigation. Cases of suspected fraud and homicide where the beneficiary is a suspect may also cause delays.
There’s also a two-year contestability clause which states that if the insured dies within the first two years of the start of the policy, the insurance company may choose to delay the payout until the entire two years have elapsed. The insurance company may also deny the claim if the death was due to suicide, a pre-existing condition that isn’t covered by the policy, or if there are grounds for misrepresentation.
Payout Options
Beneficiaries may choose to take a lump-sum payment, which remains the simplest and most popular form of payout, as it settles the account with a single deposit.
There’s also an installment-payout or annuity option, in which the proceeds and accumulated interest are paid out regularly over their lifetime. Depending on the extent of coverage, recipients may determine how long they would like these installment payments to last. Generally, it can last anywhere between five and 40 years. Keep in mind that any interest income is subject to taxation.
Consult with a financial professional who can help you and your beneficiaries with proper money management and explore ways to maximize policy payouts.
Coverage and Use of Life Insurance Proceeds
Letting your beneficiaries know how much the payout is will help them decide how to best use the money. Life insurance benefits may be used to cover immediate financial needs like hospital bills, funeral expenses, and unpaid debts such as mortgages. It will be best for beneficiaries to start with paying off balances with a high-interest rate because the higher the rate, the more those debts will cost you over time.
Beneficiaries can also use the payout to help take care of personal bills, household expenses, college tuition, and other things that would help ease the burden on your family and loved ones in the event of your passing. If they don’t need to spend the money any time soon, they can put some of the funds in an investment account, so it has the potential to grow in value.
A life insurance agent can also help you better understand the steps in getting the death benefits. Designing a life insurance policy with a payout option that works best for your beneficiaries will adequately protect and give them the financial support to plan their future even after your death.
