23 Jan How Do Life Insurance Payouts Work?

How do you receive a death benefit? What are the payout options? Coming up: these questions answered and more.

How Do Life Insurance Payouts Work?

Life insurance payouts are also known as death benefits and are distributed to the beneficiary (person who gets money) after the policyholder (insured person) passes.

What’s A Death Benefit?

A death benefit is the amount of insurance the policyholder has paid for, and the amount most likely to be paid out after the policyholder dies. You get higher coverage when you pay a higher premium or prove that you need higher coverage. These funds can be used for funeral expenses or paying off the deceased’s debts, as well as future living expenses, paying university, and more.

Did you know you can access your payout while you’re still alive? This can be to help pay for chronic illness medical expenses.

How Do You Receive A Death Benefit?

It’s usually a good idea to reach out to the insurance company, but in general, the process works as follows:

1. Obtain A Death Certificate

This is to assure the insurance company that the policyholder is dead and that the policy can actually be paid out.

2. Access Policy Documents

Typically, these include information about how much the policy is worth, who the beneficiaries are, and the process of filing a claim.

3. Contact The Insurance Company

Tell the insurance company the policyholder has passed away, making sure to provide all relevant documentation.

4. Start The Claim Process

Fill out a form called “Request for benefits”, which requests information about the policyholder and how you would like to be paid.

5. Wait For The Death Benefit To Process

This could take weeks to months, as the insurance company must go about validating your position of beneficiary, confirming death, and ensuring the policy is in good standing.

Death Benefit Payout Options

There are different types of ways to receive the death benefit, including:

Annuity

The insurance transfers the money into an annuity investment account, so every year the beneficiary receives some of the benefit plus the interest it accumulates until the benefit runs out.

Lump Sum

This is when you receive the entire benefit all at once.

Retained Asset Account

This is a popular option because you get to access your money as a lump sum while still gaining interest on it.

 Why A Claim Could Be Denied

If the policyholder didn’t make payments as scheduled, or if their death falls under a manner excluded in the policy, such as suicide, the death benefit claim may be denied. The payout may take longer to process if the policyholder died during illegal activity, if they were murdered (to make sure the beneficiary wasn’t involved in the crime), or because of suspected fraud, like entering false information.

Now that you understand how death benefits work, it’s time to consider life insurance, the ultimate safety net for your loved ones. Get in touch with Credit Boost for universal, term, or whole life insurance policies.