The death of a loved one is always a devastating loss. Financial loss frequently follows emotional loss. In such cases, a life insurance policy is a godsend. Insurance companies recognise that this is a trying time for you. As a result, the claim filing process is kept as simple as possible. And to tell you all about it, we’ve covered everything you need to know about claiming life insurance in five simple steps. Whether or not you have the policy’s details, you can file a claim by following these steps.
How To Claim Life Insurance In Case Of Death?
#1: Getting Your Paperwork In Place
Don’t worry; there is no extensive paperwork to be done. Just three simple documents: Death Certificate, Policy Document, Claim Forms. As simple as that.
1. Death Certificate:
The first document you will need is the death certificate. And the good part is that there is no separate procedure for procuring the certificate. You can request it from whoever prepared it, for example, from the medical professional or the funeral home. Even the vital records office can provide you with the certificate. You only need to ask them in person, on the phone, or even online. Convenient, isn’t it?
2. Policy Documents:
The next document required to claim life insurance is policy documents. This document has all the information related to the policy. It has the type of policy, its term, beneficiary, how to give away the payout, and everything required.
The insurance provider compares these papers with their records. And if found the same, they give away the payout.
The above process sounds simple, but it is not that simple many times. The problem is many times, the beneficiary does not know that he is the beneficiary. And even after the acknowledgment, he does not know where the policy papers are.
But there are solutions to every problem. If you know the insured’s insurance company, you can directly contact the company. Or you can also consider getting the insured’s financial advisor, like the accountant, financial planner, banker, etc. Another good way of getting to the papers is by searching in your loved one’s physical and digital storage.
But what if you do not even know the insurance carrier’s name? You can then search using the National Association of Insurance Commissioner’s Life Insurance Policy Locator Service. But it would be best if you tried to avoid this as this can add about 90 business days to your claim filing process.
3. Claim Forms
This one is the last and the final document. You get the claim form from the insurance carrier. They mail you these forms once you notify them of the sad demise of the insured. Filling out these forms is simple. It has fields like the policyholder’s name, the policy number, the cause of death, etc. It is here that you mention how you want the payout—whether in a lump sum, or installments, or any other method.
After filling the claim form, attach the death certificate and policy documents with it and send it to the insurance carrier. The insurance carrier will soon return the death certificate, policy papers, and claim forms after proper scrutiny. And soon enough, if all goes well, you will receive the payout.
#2: Get In Touch With The Insurance Company
Once you have got all the documents in place, you have to reach out to the insurance company. Let them know of the unfortunate demise. And be prepared with all the documents so that the claims process can be smooth and fast. Because the quicker the claims process, the sooner you will get the financial support.
How Long Can I Take To File A Claim?
The death benefit money is all yours. So, you can claim it anytime you wish to. There is no bar on the time until which you can claim your benefit.
Furthermore, the longer the money stays with the insurer, the more interest accrues on the death benefit. Thus, you get paid more if you let the money rest with them for a while. But there are laws regarding the interest that differ from state to state. So, be vary of these laws before you decide on anything.
#3: The Claim Processing Step
The next step is the claim processing step. Depending on your application, it can take any duration from a few days to 30 or even 60 days.
The better prepared you are from your side, the quicker can be the claim processing. Once you submit your documents, the insurance carrier checks the beneficiary’s identity from its end.
When the policyholder took the policy, they submitted some ID Proof of the beneficiary, like a driving license. They do this to provide the name, address, date of birth, and SSN of the beneficiary. While cross-checking the documents, the insurance company will compare your ID proof with the policyholder’s one. If both match, a lot is sorted.
Another thing the companies check is that if the policy is still active or not. It might happen that premiums were not paid, and the policy lapsed. Or the term of the term insurance got over. Anything might happen, but if you are right, you will get paid.
The reason you can count on the insurance companies to pay you the claims money, they have to pay interest on this money. So, the sooner they pay, the better for them.
#4: Choose Your Payment Method
The next step to claim life insurance is choosing your payment method. There are two or three payment methods you can choose to get your rightful payout. There is a lump sum facility, an option for an annuity, and another for monthly income. Let’s see the pros and cons of all three:
1. Lump-Sum Payment:
In this method, you will get all of your payments at once. This method is useful if you have to pay off mortgages or clear off debts. You also do not have to worry about the funeral expenses. Everything is taken care of through this one-time payment.
The best part about taking a lump sum amount is that you do not have to pay any taxes on the death benefit. The amount is entirely tax-free.
Furthermore, you have two ways in which you can receive this lump sum payment. The first is through direct bank transfer, and the second is through a check. You can inform the company of the method of your choice in the claim form.
An annuity is an interesting form of a payout. In this method, the company invests your full payout, and the beneficiary receives an annual income. This method is called an annuity. An annuity is paid for several predetermined numbers of years starting from a date in the future.
This payment, however interesting, has its positives and negatives. The positive being that, since you have invested your money, you can draw out a sum of money that is greater than the actual death benefit.
But where there is a positive, there has to be the other side of the coin too. The drawback is, if you die before you get all your annuities, you will be withdrawing a sum of money lesser than the lump sum amount.
3. Carry Forward Life Insurance
This payout method is not so standard, but still an interesting option. This option allows you to carry forward the life insurance benefits. What we mean is that you, as a beneficiary, will not get the death benefits. Instead, they will be carried forward and paid to your beneficiary after your demise. However, you will get the interest on the money you have kept as security with the insurance carrier.
This payout method is a good option for those who do not need the death benefit for any expenditures. Thus, they can easily carry forward the policy for their kin. And you are anyway getting the interest. But keep in mind that the interest accrued on the death benefit is taxable. That is, the interest you receive will add to your taxable income.
So, these were the major ways in which the insurance carriers pay off the death benefit. You can also ask your insurance agent for more payout methods as they differ from company to company.
#5: Pen Down Your Last Wishes
Once you are not there to take care of your loved ones, they will have to make their own decisions. Financial or emotional, it will be their take then. Things can get complicated for them, especially as they have to handle the loss too.
In such a situation, if you leave a roadmap of how to use the death benefit, like for college fees or mortgage, etc., it can be a huge help.
You can leave broad directions as well as a detailed roadmap; the choice is up to you. Your financial advisor can help you with this.
So, this was the last step when you claim life insurance. See? This process is a fairly simple one. Just keep the documents ready, and you will be sailing smoothly. But lastly, here are a few more points that can delay or deny your claim. Skim through these, too, so that you are all set to file your claim.
What Can Be The Possible Reasons For Delays In The Payout?
Some of the situations which you should know are:
#1: If the death occurs within the contestability period:
If this is the case, then the beneficiary may be devoid of the death benefit. The contestability period means a time when the insurance company can investigate the medical history of the insured. And if they find something that was untold, they can deny the claim.
#2: Suicide within the contestability period:
Few reasons for death are not covered by the policy, like suicide within the contestability period, drug overdose that the doctor did not prescribe, etc. Other reasons like homicide, illegal activities, and death while engaging in a risky hobby like bungee jumping are also not covered.
#3: You do not pay the premium:
If you did not pay the policy premiums, your policy will lapse, and you cannot claim life insurance.
#4: You do not mention the beneficiary:
A not so common, but still a basic fault is that the insured does not mention any beneficiary. In this case, the death benefit goes to the estate, and the court decides who will get the payout. Until then, the money remains with the estate.
#5: If you are a divorcee:
Another case where your life insurance claim can be delayed or denied is if you are an ex-spouse. Yes, some state laws automatically remove you, the ex-spouse, from beneficiary status after divorce. But there are also child support actions. In this, if your beneficiary is your child, then the court can order to keep it the same.
#6: If your beneficiary is a minor:
If a minor becomes a life insurance beneficiary, he will not receive the payout as obviously, he is a minor. He needs a guardian to receive the money.
You may need to put a little bit of paperwork in place to ensure enlisting a good guardian.
#7: If the insured mentions the life insurance policy in a will:
The policy is a type of contract and, thus, out of the scope of a will. But still, many people mention the contract in a will. This inclusion, however, does not mean anything but results in a delay in the disbursement.
#8: You do not update the beneficiary name after major life events:
You need to update your beneficiary after major life events like marriage, children’s birth, etc. And if you do not do so, many people can claim your death benefit. This situation will lead to delays in the payout because the company requires an interpleader.
#9: When you are not specific about your beneficiary:
When you specify only ‘children’ in your policy and not the child’s name, this can lead to a delay in the payout.
Likewise, many other reasons can delay your death benefit. So, be vary and avoid such mistakes.
So that was our guide on how to claim life insurance. To summarise, if the beneficiary has all of the necessary documents and the policyholder has made a proper application. There is no way for the company to deny the death claim.
We hope you found the article interesting and informative. Although we tried to be thorough, if you have any further questions, please leave them in the comments section. We will gladly respond.