Understanding the working of life insurance payout is complicated and sometimes can become a daunting experience for your family when they are not able to get ahold of it. This article will help you understand most of the process so you can make sure your beneficiaries get paid on time, with no extra effort.
It is one of the most common areas of concern and inquiries we get from clients who have purchased a life insurance policy; how to make sure their beneficiary gets paid after the death of the policyholder.
Conversely, when the insured dies, we often hear from relatives seeking answers on how to receive the insurance benefit. Sometimes they don’t even know if they were the beneficiaries, and most often, it becomes impossible to locate the actual policy, so they have to reach out to the insurance carrier and piece together a complicated puzzle. All of this should weigh on the mind of the insured person when they purchase a policy because after all, the reason you buy the coverage in the first place is to provide financial security and peace of mind for your loved ones.
We take this matter very seriously because the emotional loss is difficult enough, so our goal is to help you fully understand how life insurance works and to make sure your beneficiaries receive the life insurance payout you intended for them.
The first step in the process is designating a beneficiary, along with filling out financial and health questionnaires, and a possible medical exam, as part of the traditional life insurance application and approval process. But choosing the person(s) who will get the life insurance payout upon your death is perhaps the most important step of all.
Insurance death benefit payouts don’t just happen automatically when the insured dies. The carrier typically requires that beneficiaries produce proof of death and file a formal insurance claim to receive payment. The good news is that it is not a complicated process, but it does take a little legwork to piece it all together.
Unfortunately, life insurance death benefits remain unclaimed because sometimes the beneficiaries of the policy are unaware that they were even named in a policy. That is a worst-case scenario because state insurance regulators are constantly improving guidelines and practices of large insurance companies to make them aggressively identify policies that are due for death benefit payouts.
The key term to remember is “Contestability Period.”This period, which varies from state to state, runs from one to two years after the insured buys the life insurance policy. The reason this rule is in place is to prevent fraud.
The infamous Suicide Clause. That is one of the reasons a claim can be denied… if the policyholder commits suicide within one to two years from the enforce date of the policy. Again, it depends on the state of residence.
Death by homicide, or if the insured dies while committing an illegal or criminal act, are other reasons a carrier can contest or deny a payout to a beneficiary.
Even a frequent risky hobby (skydiving, auto racing) that caused the death of the insured, which wasn’t disclosed in the original insurance application, is cause for denial or at least investigation.
Do you want all the money now… in a lump sum… or in increments over your lifetime? Think of how it works when people win the state lottery; they can choose to get that big, fat check immediately, or space it out for the rest of their lives. It works in much the same way with a life insurance payout.
You have gone through a lot of trouble to shop for the right insurance policy and to make a conscious decision to invest in your family’s long-term future. The last thing you want is to let sloppy organization get in the way of providing the financial legacy for which you want to be remembered. Take charge of your life and get your financial house in order.
The insurance companies have made it easier for you to digitize your information, even providing electronic policy delivery, so you don’t have to be bogged down with old-school mounds of paperwork.
Take advantage of these 21st-century tools that will help you keep this valuable information forever. And share the news with the people who will benefit from your generosity by emailing them a copy of the policy information, and telling them that you are giving them a gift that could someday change their life.
If you have any questions about how to handle your life insurance payout, get in touch with our agents and advisors at LifeQuote – even if the policy you ask about wasn’t bought with us. Our experts will answer all your queries and walk you through the process.