How does life insurance pay out?

This is the process for how life insurance pays out and the steps you need to take.

• Locate the life insurance policy. If you can’t find the policy, contact your life insurance agent, the company that issued the policy or the human resources department of the company that sponsors the group life insurance plan. If you’re still stuck, check out these additional tips on locating a life insurance policy from the American Council of Life Insurers. Two last resort options include searching the NAIC Life Insurance Policy Locator Service or contacting MIB, an insurance membership corporation that offers a policy locator service for a fee.
• Obtain a certified copy of the death certificate. Check with the state or county where the policyholder passed away or with the funeral director arranging services to get a copy.
• Fill out a request for benefits. This is the claim form from the life insurance company that you can get from the insurer or from your life insurance agent.
• Pick a payout option. You typically have two choices:
  • Lump sum: This option gives you the entire death benefit all at once.
  • Annuity: This option pays you the death benefit over a set number of years. The benefit is invested during that time, leading to a higher overall pay out (so long as you live long enough to collect the entire benefit).
• Send the paperwork to your insurer. Do this ASAP to prevent any delays. Make sure to also include a copy of the trust document if the policy is owned by a trust.

At this point, your work is most likely done. You’ll simply wait until the insurance company sends you the payout via check or direct deposit. That can take  anywhere from a few days to several weeks. The insurer or your agent can give you an idea of when to expect the life insurance pay out.

There are, however, times when the life insurance payout is delayed. Common reasons for a delay include:

• The policy expired before the death occurred.
• The policyholder was not current on paying premiums at the time of death.
• The death occurred during the contestability period. The contestability period is a window of time after a life insurance policy is issued. During this time, the insurer can investigate and deny claims. The contestability period typically lasts a year or two. It’s meant to protect the insurer against insurance fraud.
• There is fraudulent information on the life insurance application. An insurance company will always check to see if the information on the life insurance application was truthful. If it wasn’t—say, the policyholder died while skydiving and denied having any risky hobbies on his or her application—the claim can be denied. It’s just not worth it to lie on your life insurance application—plus, it’s a felony in every state.
• The cause of death is homicide. The insurer will typically wait to make sure that the beneficiary (or beneficiaries) are cleared as suspects before greenlighting the payout.

A licensed insurance agent can help you navigate the life insurance payout process and answer any other life insurance questions you have. If you don’t have an agent or advisor to work with, check out our agent locator. You can also work directly with an insurance company. Here are company partners that support our non-profit mission and can assist you in getting coverage directly or through one of their agents or advisors. The key is to start today.