If you’re the beneficiary of a life insurance policy on someone who recently passed away, you may be wondering how the payout process works. What’s the typical time frame? What’s the usual procedure for processing claims? What do you need to do?
Step 1: Gather information
The first step in claiming your loved one’s death benefit is to look through their records for information on the policy. It’s helpful to have a complete copy of the policy when filing your claim, but this is not entirely necessary. Bank statements, updates from the insurance company via mail, and tax documents can all help you gather information about the policy. Employers may also have documentation on any group life insurance policies that were purchased as part of an employee benefit plan. If nothing else, you should at least know which insurance company to contact.
If you’re not sure whether your loved one had life insurance to begin with, there are several options available (see our previous blog post). For instance, the National Association of Insurance Commissioners (NAIC) runs a “Policy Locator Service” in which the NAIC will contact insurance companies on your behalf. You can also pay private companies such as Policy Inspector to speak directly with insurers and search for a missing policy.
Step 2: Contact the insurance company
The next step is to contact the insurance company directly and let them know that the insured has passed away. In order to locate the policy, they will need the insured’s date of birth and social security number, and/or the policy number. They will then send you claim forms and tell you which documents they need to have before processing your claim. If the policy is through an employer, contact the employer’s human resources or benefits department with the information instead of contacting the insurer.
Step 3: Fill out claim forms
The sooner you fill out the claim forms, the sooner the insurance company can process the claim. If you need the death benefit as soon as possible, you’ll want to fill out claim forms shortly after receiving them. Each insurance company has its own process for claimants, but you will always be required to send a copy of the insured’s death certificate. Insurance companies typically accept claim forms by mail or through an agent, but some also allow claims to be filed online.
Step 4: Wait for a response
Each state has its own rules for when life insurance companies need to pay their claimants. For instance, SC Code § 38-63-80 dictates that if an insurer hasn’t processed a claim within 30 days of submission of claim forms, the insurer will also have to pay interest on the death benefit. Although it doesn’t provide a strict deadline, this statute incentivizes insurance companies to pay within the initial 30-day period. Generally speaking, your claim should be processed and your benefit paid within 1-2 months after submitting claim forms. Some companies say it takes as little as 10-14 days for the average, uncontestable claim.
If your claim is approved, the insurance company will typically provide multiple options for payment. You may elect to receive the benefits all at once in a lump sum payment, or to distribute them out over time through annuities. Using an annuity system can allow the policy to collect interest, but this interest is generally taxable. A notable exception occurs on policies with spendthrift provisions, in which the insurer holds onto the benefit and distributes it via prespecified installments (see our previous blog post).
However, life insurance companies may attempt to find reasons to delay or deny your claim (see our previous blog post). This is especially common when the policy was purchased within the past 2 years. During this period, errors, misrepresentations, or omissions can void the life insurance policy altogether, and suicide is generally not covered. Within this period, insurers will frequently delay claims in order to conduct a thorough investigation of the insured’s medical records. Even outside of this two-year window, life insurance companies may deny your claim due to nonpayment of premiums (see our previous blog post) or for violations of arbitrary, overly specific provisions on the policy. If your claim has been unjustly delayed or denied, it’s prudent to contact an experienced life insurance lawyer for a free consultation.