You purchase a life insurance policy to protect the financial future of your loved ones. If you die, your beneficiary on the policy will need to make a claim to receive those valuable benefits. While there is a bit of work to do, it shouldn't be overwhelming or stress-inducing.
Here is some basic information about claiming your term life insurance payout, the different payout options available, and some other common benefit concerns. We’ll cover the simple steps that should be taken by the policyholder and the beneficiary in order to make claiming a life insurance payout a simple and smooth process:
Making Life Insurance Claims Easy Starts With The Policyholder
Making sure that the policy works as its intended and protects your loved ones starts with the policyholder. To begin with you’ll need to make sure that your life insurance policy is set up correctly to ensure that the death benefit gets paid to the right person.
STEP 1: Identify Who Has Been Named the Beneficiary And Keep The Policy Updated:
When you set up your life insurance policy, you'll name your beneficiary in one of two ways. You'll either list a particular person or persons (per capita), or you'll list beneficiaries by branch of the family (per stirpes). For example, if you list per stirpes, the proceeds would still go to grandchildren even if you outlive your adult children.
If your situation changes and you need to change who will receive the death benefit it’s essential to keep your policy up to date with the new beneficiary information. If you fail to notify the insurer of the new recipient the money will go to the beneficiary named on the policy.
Step 2: Make It Easy To Claim The Life Insurance Payout
Did you know that there are billions of dollars of life insurance payouts that are still unclaimed? One of the biggest reasons that policies go unclaimed is because beneficiaries and families don’t know the policies exist! If you’re guilty of hiding your life insurance paperwork in a drawer and failing to let your loved ones know that you have coverage it’s time to make it easier for them to get the life insurance payout you’ve planned for them to have!
To make it easy for your beneficiary to make a claim on the policy it’s essential to leave the policy information somewhere that it will be easily found in the event of your death, you may even want to inform your family of the policy so they know that they will need to make a claim.
Claiming Life Insurance Is A Simple Process For The Beneficiary
When you take out a life insurance policy you want your loved ones to be protected from financial strain so it’s important that they have quick and easy access to the death benefit money. Your named beneficiary will need to follow these 2 simple steps to claim a life insurance payout:
STEP 1: File the Life Insurance Benefits Claim
Once the beneficiaries of your life insurance policy are identified, a claim will need to be filed with the insurance company. The beneficiary will be asked to fill out a specific set of forms, which will vary based on your insurance carrier and state of residence. This is a crucial step in securing life insurance benefits because the insurer will need to verify that the death is covered by the policy.
If the policy is less than two years old, there might be a contestability period that allows the insurance company to delay payout while they investigate the legitimacy of the claim. When your beneficiary fills out the claim form, they need to make sure that the information is complete and truthful. Life insurance policies may state that coverage will be denied for certain causes of death such as suicide and alcohol or drug overdose.
STEP 2: Choose From The Different Life Insurance Policy Payout Options
When the insurance company approves the claim for benefits, they will provide your beneficiary with several different payment options. There are four main types of death benefit payment options:
Cash Lump Sum
The most common method of payment is a lump sum, where all funds are dispersed in one single payment.
A "Life Income" option allows the beneficiary to receive a fixed monthly payment from the insurance company for the remainder of their life. This ends when they die and is not transferable to another party.
With a "Specific Income" option, they can choose how much they'd like to be paid monthly until the death benefit is exhausted.
The "Interest Income" option pays them only a periodic interest payment, while the principal remains with the insurance company.
Understand The Tax Implications of Life Insurance Payouts
Your beneficiary will need to take into account the tax implications of the life insurance death benefit. Fortunately, most life insurance proceeds aren't taxable. This is particularly the case with a term life insurance policy, where there is no cash value component. In some cases, life insurance policy proceeds are used to pay taxes, especially in the few instances where the estate tax comes into play. The only time that you may need to pay taxes on life insurance payouts is if you receive interest payments over time from the insurance company. In these cases, that interest paid by the insurance company is taxable.
Do You Have The Right Amount And Type Of Coverage?
Now that you know the basics of claiming life insurance it’s time to check that your coverage meets your needs. Making sure that your family can easily access the death benefit from your life insurance policy is a key part of evaluating your life insurance coverage but it’s also essential to take a deeper look at your coverage needs, especially if it’s been a few years since you enrolled in a plan.
To ensure that you have the right coverage to fully protect your family from financial stress and provide for their future try our life insurance calculator to see what death benefit amount your family would require. If you have questions about coverage options feel free to call our agents to request a quote now.