Losing someone you love is tough. Nothing can take away the grief you might feel, but a life insurance payout can help relieve some of the financial pressure those in mourning might face. Life insurance beneficiaries can use the money they receive to help cover final expenses, pay monthly bills, or make a loan payment.
There can be some peace of mind in knowing you have a life insurance policy, but what happens when you need to use it?
Have you ever wondered how death claims work or how long it takes to get life insurance money? Read on to learn more about death claims, life insurance payouts, and the factors that can influence the length of time it takes for beneficiaries to receive life insurance money.
What is a Death Claim?
It’s a smart idea to let your beneficiaries know that they are listed on your life insurance policy. When you give them the news, be sure to share the name of your insurance company and your life insurance policy number. This information will be helpful if you pass away.
Another good idea — keep your beneficiary’s contact information up-to-date with the insurance company that issued your policy. Maintaining current contact information for your beneficiaries makes contacting and verifying your beneficiaries easier in the event of your passing.
If you are a beneficiary on a life insurance policy and the policyholder passes away, you will need a death certificate to make a death claim with the insurer. When you notify the insurance company of the insured’s death, something you can typically do online or over the phone, you will likely be asked for your loved one’s policy number, their date of birth, the cause and manner of their death, and whether your loved one passed away in the US or abroad.
Insurance companies ask these questions to better understand the types of requirements they may need to help settle your claim for benefits.
Once your death claim is approved, you are one step closer to receiving the policy’s death benefit.
How Do Life Insurance Payouts Work?
When you buy a life insurance policy, you can list multiple beneficiaries. After an insurance company receives a death claim, they will try to contact the policy’s beneficiaries to let them know the policyholder has passed and a death claim has been filed.
This communication is typically done with compassion, and the representative from the insurance company should be able to explain the life insurance payout process and timeline to you. Once they have verified the policy beneficiary’s identity, there should be an opportunity for the beneficiary to ask questions.
One common beneficiary question is how long does life insurance take to pay out?
How Long Does Life Insurance Take to Pay Out?
After a death claim is approved, if it is delivered in a lump sum and there is nothing out of the ordinary to hold things up, the life insurance payout is delivered relatively quickly. In most cases, the life insurance company sends payouts as paper checks or electronic fund transfers (EFT).
Death benefits are typically large sums ranging from $50,000 up to the millions, and most banks hold large deposits for a couple of days before releasing the fund to the account holder. Therefore, it’s best to hold off spending a life insurance payout until the money is secured in your bank account.
Now that you know how long it takes to get life insurance money in typical situations let’s look into some circumstances that could cause a beneficiary to wait a bit longer than anticipated to receive the policy’s death benefit.
Factors That Impact Life Insurance Payout Timelines
Some circumstances can cause a life insurance payout to take longer than usual, but the good news is that many of them are preventable. If you see something on this list that applies to you now, it might be time to call your insurance agent with an update.
- The insurer cannot locate the policy’s beneficiary. If your insurance company is notified of your passing, they will try to contact your life insurance policy’s beneficiary. In a perfect world, you will have kept your beneficiary listing updated with a current address and phone number, but if the information is outdated, that could hold things up.
- The primary beneficiary passed away, and no contingent beneficiary is listed. Let’s say the primary beneficiaries of your life insurance policy were to pass away before or with you — who gets the death benefit? In most cases, the answer is your contingent beneficiary, if you listed one. If you didn’t, the money from your life insurance policy’s benefit would typically go to your estate.
Anyone who doesn’t have a contingent beneficiary listed might want to consider calling their insurance company or agent to update their policy. Doing so gives you more control over what happens to the money from your life insurance policy if you were to die unexpectedly while insured.
Outside of naming contingent beneficiaries, policyholders will often designate a trust as beneficiary instead. Trusts, like wills, can be written to include language instructing the trustee as to whom should receive benefits in the event of a beneficiary’s death. It is always wise to seek the advice of an attorney when establishing a will or trust.
- The policy’s beneficiary is a minor child. Listing a minor child as a beneficiary can lead to complications. If you do so without also naming an executive custodian, the money from your policy will generally be held by the insurance company that issued the policy until the minor reaches the age of majority. If a minor is designated as beneficiary when the insured dies, an adult would need to be appointed by the probate court as guardian over that child’s interest in the benefit.
When considering naming a minor beneficiary, it is a good idea to discuss your options with an attorney that can help you decide on the best structure to ensure your loved one receives the benefits you intend at both the age and timing you feel is most appropriate.
- The insurer contests the death claim. You must tell the truth on your life insurance application. If a policyholder dies and the insurance company discovers a misstatement or omission on the insurance application, they could contest the policy, which could result in the voiding of the contract.
Misreporting smoking habits or failing to disclose something in your medical history are valid reasons for an insurer to contest a claim. Contested claims are investigated and can result in waiting a long time to get life insurance money or even a complete denial of payout.
How Long Does It Take to Get Life Insurance Money if You Have Term Life Insurance?
Term life insurance is one of the most straightforward types of life insurance. If a death claim is approved and the policy’s beneficiary is due to receive their life insurance payout in a lump sum payment, they can expect a short waiting period.
You can choose your policy’s term, death benefit, and beneficiaries upon approval. The best part — it’s probably more affordable than you think. Bestow’s rates start from just $11 per month (that’s less than the cost of a medium pizza).
- Once a death claim is approved, the waiting period for a life insurance payout is typically short.
- It’s a good idea to keep your life insurance policy’s beneficiary information up to date and to make sure your beneficiaries know the name of your insurer and policy number.
- If your insurer cannot reach your beneficiaries or if you have a minor child listed as your beneficiary, it can affect how long it takes to get your life insurance payout.