From the Learning Center

How Do Life Insurance Payouts Work?

By the Bestow Team·August 09, 2021·7 Minute Read

In this Article

If you’re a smart consumer (and since you’re here reading an insurance article on your own time, you must be), you want to know everything about the product you’re considering before you sign on the dotted line.

Life insurance is a big deal, but what sets it apart from other important financial decisions is that you will not be around to experience the benefit of your policy.

Nonetheless, it’s a good idea to learn about how the claims process works, and how death benefits may be paid out.

What is a life insurance payout?

Let’s go back to the basics. Life insurance is a contractual agreement between a life insurance company and a policyholder (hey, that’s you!). In the simplest form of this agreement, the insurer pledges to pay a specific amount of money to those named as beneficiaries if the insured dies while the policy is in force. In exchange, policyholders agree to pay life insurance premiums for the duration of the policy or while they are alive. Your premium is often split into monthly, quarterly, or annual payments.

Though losing someone is never easy, life insurance can offer tax-advantaged financial relief for your loved ones should you pass away. The people who you designate to receive your life insurance payout are called your beneficiaries and the payout your beneficiaries receive, also known as a death benefit, is generally received income-tax free.

Who gets your life insurance payout?

If you’re unsure who to name as your beneficiary and are considering making your loved ones draw straws, we’ve got you. Save your straws for milkshakes or determining who has to wash the dishes.

When you purchase a life insurance policy, you will then name your beneficiary or (wait for it) beneficiaries (plural). You can name a single primary beneficiary or multiple beneficiaries. These are the people who you select to receive a death benefit upon your passing – typically a spouse, children, family members, or even a close friend.

Additionally, you may want to select a contingent beneficiary, a person or entity that gets the insurance payout if the primary beneficiary is deceased. Primary and contingent beneficiaries can be people or entities like a trust or a non-profit organization.

Remember to talk to your beneficiaries

Information is power in the insurance world. Your insurer will want the contact information of each beneficiary you name, as well as their social security numbers. On your end, it is a smart idea to make sure the people you select as beneficiaries are aware they will receive your life insurance payout. If you take a minute to email these folks the name and contact information of your insurance company, and your policy number, it can save them heaps of stress in the future.

Life insurance beneficiaries: navigating the life insurance claim process

Losing someone you love is a heart-wrenching experience – and in addition to navigating grief, there will be realities to face and bills to be paid. As a life insurance beneficiary, it is important to note that life insurance companies don’t automatically dole out payments upon a policyholder’s death. In most cases, the beneficiary must file a life insurance claim, also called a death claim, to receive the insurance payout.

How does a life insurance policy work after someone dies? Let’s start with the four main steps of the death claim process:

1. Gather the necessary documents

There are no tight deadlines or time limits when it comes to filing a death claim. When beneficiaries are ready to file, their first step should be gathering the necessary documents including:

  • The policy document . If beneficiaries can’t find this document, your insurance agent may be able to help. This document lists policy type, coverage amount, and policy owner information.
  • A claimant’s statement. Each beneficiary will need to submit what is called a claimant’s statement and is also referred to as a claim form. A claim form typically includes the beneficiary’s contact information and their preferred method of receiving the death benefit payment. For individuals, this is a straightforward process, but if the beneficiary is an entity and not a person, a certificate of Power of Attorney may be required.
  • A death certificate. The insurance company will need a certified copy of the policyholder’s death certificate with a raised seal issued by the state. In most cases, this can be obtained from a funeral home or mortuary. Otherwise, much like birth certificates, a death certificate can be ordered from a county or state vital records office.

2. Get in touch with the insurer

As soon as beneficiaries gather all the necessary documents, the next step is notifying the insurance agent of the policyholder’s death and submitting the claim form. The contact information should be on the policy document and can also be found on the insurer’s company website. Life insurance companies will give beneficiaries instructions on how to submit the required documents and ask for any additional information they might need to process the death claim.Get term life insurance coverage today, if approved!

3. Wait for the insurer to process the claim

In the words of Harry Potter and Hermione, and now we wait . In some cases, insurers will send beneficiaries a payout within a few days, but the process can take up to sixty days or longer.

During this time, the insurance agent will review the death claim and the documentation submitted. They’re making sure the policy is active, that there was no lapse in payment, and that the coverage term has not expired. Once the insurance institute has crossed all the t’s, dotted all the i’s, and approved the death claim, payment will be submitted to beneficiaries via the method selected in the claimant’s statement.

4. Decide how you’d like your life insurance payments distributed

If you assumed that life insurance payouts were a one-and-done situation where the beneficiary receives a single check, you’re not wrong. A lump-sum payment is one of the payout options, but there are a few other ways beneficiaries can receive a death benefit.

  • Installment payments, otherwise known as a systematic withdrawal, occur when a beneficiary elects to receive a certain percentage of the payout in timely installments. For example, your beneficiary may opt to be paid 10% of the death benefit annually over ten years. A lot of times people go with this incremental payout option because the unpaid amount usually earns interest (though any interest earned is usually taxable).
  • Annuities are lifetime income payouts, which means the beneficiary receives a guaranteed permanent life payment for the rest of their lives. If this option is selected, the insurance company calculates the payment amount using the beneficiary’s age at the time of the claim. If your beneficiary chooses a set annuity period, they will also select a beneficiary of their own. If they die before the annuity period ends, their selected beneficiary will receive the remaining death benefit from your policy. If your beneficiary passes away without this set timeframe, any remaining death benefit would go back to the insurance company.
  • Retained asset accounts are offered by some insurance companies as a payout option. If selected, your beneficiary’s payout would be placed in an interest yielding account. They would have full access to this account, which is guaranteed by the insurance company even if the amount exceeds the $250,000 FDIC limit. The initial death benefit remains tax-free, but any interest earned is taxable.
  • Lump-sum payments , as previously mentioned, are a life insurance payout option. If selected, the insurance company will issue your beneficiary a one-time lump sum payout of the entire death benefit. Policies offered by Bestow, for example, would pay a death benefit in this way.

What is the best thing to do with a life insurance payout?

When you sit down with your beneficiaries, consider sharing with them your motivation for purchasing life insurance coverage. Though you won’t have any say in what they do with the payout after you are gone, it might be helpful for your loved ones to know your intention.

There are no rules or right ways to spend a death benefit because each person’s financial situation is unique.

Here are some of the most common ways life insurance payouts are used:

  • To pay off debt. This might look like paying off a mortgage or completely clearing out high-interest rate credit card debt.
  • To invest. Life insurance payouts can provide a unique opportunity to invest. If your beneficiary doesn’t need the money to survive, they might consider buying stock or investing in a mutual fund. In these cases, consulting with a financial advisor first is a good idea.
  • To save for your children’s education. If your beneficiary is your spouse or the guardian of your children, they may want to set the money aside for college tuition or even invest it in a college savings account to offer some  long term support  for their education.
  • To hire a financial planner. Understandably, a beneficiary may not be certain of the best way to handle a large sum of money, especially after a recent loss. In this case, hiring a financial planner to analyze their finances and advise them on the best path is a great plan.

Apply to get life insurance coverage today

The process of life insurance payouts should not be shrouded in mystery. When you pass away, you want to know your loved ones are financially prepared for the future. When it comes to financially planning the rest of your life, life insurance is one tool that can help you achieve some peace of mind.

Bestow offers term life insurance coverage of up to $1.5 million and our application process is simple, straightforward, and only takes a few minutes to complete. If you like what you see, you can apply completely online without a medical exam.

Bestow does not give tax or legal advice. The information provided is not intended to offer any tax, legal or financial advice. It is always a good idea to consult your tax, legal and financial advisors regarding your specific situation.



 

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Bestow Team | 5 min

Top Questions About Bestow Answered

Life insurance is confusing. We get it. With so many options out there, it’s hard to figure out where to even start. Chances are that if you’re reading this, you have questions, too.

Fortunately, you don’t have to do this alone. Every day we answer phone calls, chat messages, and emails from customers who want to buy life insurance coverage but don’t know the best way to go about it. There’s no shame in that. There’s a reason why insurance agents and brokers need to have a license to sell policies to customers — it’s a complicated topic!

Oftentimes, we hear this: “I don’t know what questions to ask.”

If that’s you, then you’re in the right place! Here, you’ll find the top questions people just like you are asking.

What Kind of Life Insurance Does Bestow Offer?

Bestow offers term life insurance. A term life policy is as easy as 1-2-3.

  1. Choose a term (between 10 and 30 years, in 5-year increments),
  2. Select a coverage amount ($50,000-$1.5 Million), and
  3. If approved, pay a set monthly premium throughout the duration of that term.

Policies offered by Bestow have level premiums, which means your monthly premium will never change, as long as your policy is in force — no matter your term length. Lock in your rate today!

How Do I Know I’m a Good Fit for a Policy Offered by Bestow?

If you’re in generally good health and between the ages of 18 and 60, a policy offered by Bestow might be a great fit for you. Our application provides an underwriting decision instantly, so you don’t have to wait weeks to find out whether you’re approved for coverage.

What Is the Application Process Like with Bestow?

Bestow’s 100% online application process has four simple parts:

  1. Your basic identifying information: email, address, and Social Security Number.
  2. Your life. This includes citizenship, medical history, lifestyle, and hobbies.
  3. Beneficiaries. This is whoever would receive the death benefit in the event of the insured’s death.
  4. Policy and payment details. If approved, choose the coverage amount and term length, then enter credit card info to purchase and bind the policy.

It’s as easy as that! In as little as 5 minutes, you could be the proud owner of a new life insurance policy.

Get an instant quote for term life insurance, no medical exam required.

Is a Medical Exam Required to Get a Policy Offered by Bestow?

Not with Bestow. A medical exam helps an insurance company double check how healthy you are. Instead, Bestow’s underwriting engine checks your health with big data and technology, which saves you time and money. We’ve partnered with third-party agencies to gather information in order to assess your risk and eligibility for a life insurance policy — instead of paperwork, medical exams, and lab tests. Here’s a detailed explanation of how Bestow works.

How Is Bestow Different Than Other Insurance Companies?

Bestow’s application process is entirely online. Seriously, 100%. Many companies offer an indicative quote online, but then refer applicants to an agent in order to finish the application process. Other online life insurance options may still require a medical exam for certain coverage amounts or applicants.

We’ve completely re-engineered the application experience for term life insurance to be super simple and more affordable. Apply and get an instant decision in as little as 5 minutes. Unlike some other online life insurance providers, we underwrite the policies we offer in-house with our own technology — accelerated underwriting. Our data and technology allows us to help our customers with just about any request.

What is Accelerated Underwriting?

Think of this accelerated, algorithmic underwriting as our secret sauce. We use that big data and our proprietary technology mentioned above to determine your risk and eligibility instantly.

What Determines How Much I’ll Pay For Life Insurance?

Your level of risk is what determines your premium and monthly rate. Risk is the likelihood that an insured event (in this case, death) should occur during the policy term. The higher your risk, the more you will likely pay.

Life insurance risk factors include basic information about you (like your age, height, and weight) in addition to things like your medical history and lifestyle. But each insurance company has their own underwriting process — that’s the process by which an insurance company determines whether it can accept the risk of an applicant for life insurance, and if so, on what basis so that the proper premium is charged. Here’s more information on life insurance risk and underwriting.

What Is the 30-Day Money-Back Guarantee?

It’s a 30-day free look period to examine your life insurance policy to see if it meets your needs. If you cancel your policy within the first 30 days, you’ll receive a refund.

How Can I Trust You? You’re a Startup.

Our policies are issued and backed by A+ rated (superior) industry giant North American Company for Life and Health Insurance®. They’ve been around for over 100 years. If anything were to happen to Bestow, your policy is well taken care of. But don’t worry, we aren’t going anywhere.

How Can I Trust My Beneficiary Will Get Paid?

North American Company for Life and Health Insurance® is the insurance carrier and pays the claim for policies purchased through Bestow. We are here to walk whoever is making the claim through the process and answer any questions.

What Happens If I Die During My Term?

Should you pass away, your beneficiary will contact Bestow to get started on the claims process. A Customer Care Advisor will walk them through the process and answer any questions while North American Company for Life and Health Insurance® processes and reviews the claim.

In most cases, life insurance policies will have a two-year contestable period where the insurance company may investigate the cause of death and review the information provided on the application (only if there’s a reason). If information is found to be false or inaccurate, the insurance company can deny the payment of the life insurance benefit.

Additionally, Bestow has partnered with Empathy to help you support your loved ones in all the ways that matter. We teamed up to give your beneficiaries (up to 10 loved ones) access to digital support tools to help them in the toughest times. From logistical tools like helping navigate probate and settling an estate to emotional tools like grief resources and meditation exercises, Empathy provides 24/7 digital access for your beneficiaries to navigate life after loss. 

Empathy is a platform made free for the beneficiaries of the policyholders with Bestow. Empathy is available to policies issued in the following states: AL, AR, CA, FL, GA, ID, IN, IA, KS, ME, MS, NE, NV, NH, NM, ND, OH, OR, VT & WV. Empathy offerings are not guaranteed to continue. We reserve the right to elect, designate, replace, or terminate Empathy services at any time. Empathy is a non-affiliated 3rd Party platform.

What Happens If I Don’t Die?

Cheers to good health!

Term life insurance policies do not build cash value like a whole life policy does, so if you outlive your policy term, you won’t get anything back. Term life policies do not renew. At the end of your term, you can re-apply for a new policy.

What If I Still Have Questions?

No worries. We’ve got your back. You can contact our Customer Care Team in three different ways:

  1. Give us a call at 1.833.300.0603
  2. Ask us a question via chat — that little box floating about the page.
  3. Send us an email at [email protected], and a Customer Care Advisor will get back to you. Please do not include personal information, like your Social Security Number.

Or if you prefer a DIY approach, you can check out our Bestow FAQ.

There’s no such thing as a silly question, so don’t hesitate to reach out. We’re happy to help.

Ready to get a quote? Apply for up to $1.5 million in term life coverage with Bestow.

 

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Bestow Team | 4 min

No Medical Exam Life Insurance: What to Know

Between work, home repairs, and a to-do list that never seems to shrink, it can feel like there is no time for extras. It’s safe to assume that most people would prefer not to take hours out of their day to get a life insurance medical exam. If this is the case, then why do most insurance companies require it?

The life insurance industry is not just old, it’s centuries old. In fact, the first life insurance policies in the U.S. were written in the 18th century. Obviously, we didn’t have the technology then (or even just a few years ago) that we do now, so medical exams have been a necessary step in the underwriting process. But times have changed, technology included. Is it still necessary to undergo a medical exam to buy life insurance? For some, the answer is yes, and for others, no. As a consumer, you have options. 

What is No-Medical-Exam Life Insurance?

No-medical exam life insurance is exactly what it sounds like: a life insurance policy that does not require a medical exam to apply.

The traditional way of applying for a life insurance policy can involve medical exams, lab tests, and in-person interviews. With this traditional underwriting process, you might find yourself waiting up to a month to get a decision.

Accelerated underwriting uses technology to make the process of applying for life insurance more efficient. As in, an application decision and knowing if you are eligible in minutes – not weeks. Pretty cool right?

As with all types of life insurance coverage, whether or not a policy is a right fit for your needs depends on, well, your needs. Some may have higher premiums, some may have differences in the application process. There are a lot of options. Here, we’ve gathered some helpful info on some of the most common life insurance coverage options which may not require a medical exam.

What Are the Different Types of No Medical Exam Life Insurance Policies?

Term life insurance can be a solid choice for many families because of its simplicity and affordability, but there are a few other types of no medical exam life insurance options, as well.

No-Medical Exam Term Life Insurance With a Fast Decision

With this option, instead of bloodwork and a medical exam, applicants will answer health and lifestyle questions and provide information about their medical history to see if they qualify for a policy.

Simplified Issue Term Life Insurance

In some ways, simplified issue is similar to the above. There’s no medical exam, and you’ll instead provide information about your lifestyle and general health, including disclosing any medical conditions you may have. It’s an option worth considering if you’re generally in good health and looking for fast coverage.

One key difference, though, is just how much life insurance coverage you can get. Simplified issue insurance typically caps off around $100,000 (although some life insurance providers do offer more coverage). Plus, a simplified issue policy may have graded death benefits, which means that your beneficiaries only get the full value of the policy if you pass away at least two years after you purchase. 

Because there are minimal questions and quick coverage, the cost for simplified issue policies will typically be more expensive than both no-medical exam or traditionally underwritten life insurance.

Guaranteed Issue Life Insurance

Guaranteed issue life insurance is a kind of whole life insurance policy (a type of permanent life insurance) that doesn’t require any health qualifications. There are no medical exams or health questionnaires. The coverage amount is quite limited though – usually between $2,000 and $25,000 – typically enough to serve as final expense insurance.

Guaranteed issue coverage is typically purchased by people who can’t qualify for any other type of life insurance. If you are approved for guaranteed life insurance, your policy will likely have a waiting period before your benefits go into effect, typically two or three years. You would pay your premiums during this time but if you were to pass away during the waiting period, your beneficiaries would not receive the death benefit. 

Group Life Insurance

Your employer may offer group life insurance with a coverage amount equal to your salary. This coverage is generally inexpensive or free and there’s usually no medical exam. It’s a nice perk if you can get it, though it’s important to remember that you usually can’t take your coverage with you when you leave the company.

Moreover, some people find that a simple one-time salary replacement is not an adequate amount of coverage. You may be able to purchase extra coverage through your employer, but consider getting a quote for a term policy before you do. You may be surprised at how much coverage you can get for the same price.

Who Can Buy Life Insurance Without a Medical Exam?

Generally speaking, healthy adults between the ages of twenty-one and forty-five may be eligible to buy a term life insurance policy online. (Bestow can underwrite policies for individuals ages eighteen to sixty, for terms of ten to thirty years, if approved.)

No one will vet your yoga class attendance record or that marathon sticker on your Subaru’s rear window. But if you are in overall good health, a no-medical-exam life insurance policy might be the right fit for you.

However, there are certain criteria that may prevent you from purchasing a policy without a medical exam. If you have a serious medical condition (such as heart disease, cancer, kidney disease, or blood pressure issues) or risky hobbies (like hang gliding, for example), you might need to speak to a licensed insurance agent to help you find a life insurance policy that fits your needs.

How To Get a Fast, Free Quote Right Now

Bestow offers term life insurance for today’s busy families. We believe that everyone should have access to the financial protection that life insurance can help provide, and that it should be convenient, affordable, and fast. 

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Bestow Team | 4 min

Who Needs Life Insurance – How It Works, and When You Should Have It

In the event you’re not around to provide for your family members, the death benefit from a life insurance policy may leave your loved ones with some degree of financial security. And for a lot of people, especially parents, that peace of mind is priceless.

You’ll have plenty of options when selecting life insurance from different face values and term lengths to riders and even policies that hold cash value. At the end of the day, the choice is personal, but knowing about all of your options can give you more confidence to finally purchase that policy.

How Life Insurance Works

In short, you pay a life insurance company a set amount of money each month (that’s the premium) for an agreed upon amount of time (that’s the term). If you pass away during that term, the insurer pays your beneficiary (the person you choose to receive the benefit) the life insurance payout.

The payout is typically tax free, and many view it as income replacement. Others plan for it to cover daily living expenses, a mortgage, or even fund higher education. You can name nearly anyone as your life insurance beneficiary and they can spend the money however they need it.

It really can be that simple. You continue to pay your insurance premiums on time each month, and you can feel good about the financial protection you are providing your family should they ever need it.

Start with a quote

Who Needs Life Insurance?

Most people start to think about life insurance when they start a family or buy a home, but the truth is, it’s always a smart time to start buying life insurance. That’s because, typically, the most affordable time to buy is now. For most people, life insurance rates get more expensive as you age.

Anyone with someone who depends on their income is a good candidate for life insurance.

1. Parents

Having kids means having bills, from early childcare costs for young children to higher education for older kids. Their financial needs are unpredictable and often come by surprise.

2. Spouses or Partners

From living expenses to outstanding debts and even private student loans, the loss of a loved one could be compounded by crushing financial burden. That’s to say nothing of the funeral expenses and other final expenses that face those left behind.

3. Stay at Home Parents

Stay at home moms and dads contribute a significant amount of non-paid labor in a home. While not typically viewed as financial support, the value of this work can easily be in the six-figures. Life insurance can help to cover the costs associated with childcare, home maintenance and more.

4. Small Business Owners

The terms of a small business loan often require life insurance, but having coverage can also solidify a commitment to employees, business partners, and small business cosigners, whose livelihoods may depend on your contribution to the company.

5. Retirees

Even if you were offered life insurance through work, that typically vanishes when you leave a job. Many retirees live on a fixed income and when a spouse or partner passes, a life insurance policy can ensure the other lives out their days comfortably.

6. Anyone with Shared Debts

If you and your spouse’s names are both on the mortgage, if your parents cosigned your student loans, or if you share a credit card, you may be leaving loved ones responsible for debt they aren’t able to pay off.

Watch this video to learn more about who might need life insurance.

Get an instant quote for term life insurance, no medical exam required.

Who doesn’t need life insurance?

If no one in your life depends on you for any financial support, you may not need life insurance coverage right now. But there’s no harm in looking at life insurance quotes today.

If you work with a personal finance advisor, it’s likely they’ll bring up life insurance while you are young, if they think you may need life insurance in the future. That’s because, in most cases, life insurance will never be as affordable as it is today. Yup. Right now. Your premium rate is determined by a number of factors including your age and health, often with a medical exam. The rate you get at 25 will probably differ significantly from the rate you get at 35.

What Kind Of Life Insurance Is Best For You?

Once you’ve got an idea of the amount of life insurance you need, you’ll need to understand which type to buy. There are several types of life insurance coverage with differing amounts of coverage, policy lengths, and even add-ons. Let’s break it down.

Whole Life Insurance

Whole life insurance (or permanent life insurance) is a policy you purchase and pay premiums on for the rest of your life. When you pass, as we all do, your beneficiaries receive a payout.

A whole life insurance policy might be right for someone hoping to transfer wealth to their children. Or people who expect to have mortgages into old age. It is almost always more expensive than a term policy because it, at some point, will pay out.

Read more about the differences between term and whole life insurance here.

Term Life Insurance

Term life insurance policy is a great choice for people looking for more affordable rates and happy to have coverage for a set number of years (like 5, 10, or even up to 30).

You can usually find out a more flexible policy with competitive rates for the years when your death would most impact your family (duration of a mortgage, children graduating, etc.)

Watch the video below to learn more about how much insurance you need.

Buying Your Life Insurance Policy

Whether you’re looking to shore up your long-term financial plan or you’d just rest a little easier knowing you’ve done something that may help your family, life insurance is now a relatively easy place to start. With Bestow, you can get a fast, free quote in seconds. The full online application literally takes minutes, and you could have coverage today, if approved. Peace of mind could be just a few clicks today. So what are you waiting for? Get started today.

 

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