A life insurance policy is a safety net for your loved ones. It’s ensuring they are well taken care of when you’re not there. This policy contains the following information;
The death benefit – The amount of money to be paid when the insured person dies. It’s usually income tax-free.
The beneficiaries – These are the people who receive the death benefits. Beneficiaries don’t have to be loved ones or people close to you. You can leave part or all your death benefits to an institution or entity.
The policy term – The length of time for which the insurer has agreed to pay the death benefit. A term policy lasts for a specific number of years.
The premium – The amount paid to keep the policy active.
The cash value – The policy’s investment component accumulates over time. It can be borrowed against or cashed out. A term policy, however, does not offer cash value.
How to Claim Life Insurance
When a person with life insurance dies, you should notify the insurance company as the assignee under the policy. Some insurance companies allow you to start the process online.
The claim notification should include details such as the date, location, and cause of death. The insurance agent is obliged to assist the life assured’s family/assignee in dealing with the insurance company and completing the necessary paperwork.
After receiving the intimation, the insuring company then requests the following documents;
- Completed claim notification form
- Death certificate
- Policy document
- Deeds of assignment if any
- A discharge form witnessed and executed
- Social security number
Other optional documents that may be required include a medical attendant’s certificate, a hospital certificate, an employer’s certificate, a police inquest report, and a postmortem report.
How long does it take?
In most situations, the insurance will send you the death benefit within one to two months of filing the claim.
However, payment may be delayed for various reasons, including;
- Submission of incorrect paperwork.
- If the cause of death is homicide, the insurance company may take longer to investigate the claim because it must rule out the potential that the person in line to receive a financial settlement was involved in the occurrence.
- If the policyholder’s death falls within the “contestability period,” which is within two years of the policy’s inception, the insurance will be voided.
- The insured party died due to criminal activity, such as robbery or driving under the influence.
- The insurer may also investigate any risky activities that the policyholder forgot to declare on their application, such as skydiving. If the person commits suicide during that period, the firm may choose to withhold a benefit.
Types of Life Insurance
There are two main categories of life insurance policies.
1. Term Life Policy
A term life policy provides coverage for a specified period, like 10 or 20 years. If you die within that period, your beneficiaries will get paid. You have to renew your coverage every time the term ends.
2. Permanent Life Insurance
Permanent life insurance provides long-term coverage with a “cash value” component that can help with a variety of goals, including helping to develop your retirement nest egg while still providing life insurance.
As a beneficiary, you don’t have control over the pay-out options, but knowing the policyholder’s options is good.
The following options are available;
Lump-sum payment – It’s the default option for most policies where a large sum is paid once.
Installments and annuities – This option involves regular payouts throughout the beneficiary’s life. These options allow the policyholder to choose a pre-determined, guaranteed income stream lasting five and forty years.
Even if you don’t notify the insurance company of the policyholder’s death, they’re likely to find out eventually. In some jurisdictions, insurers must regularly check their customer lists against the Social Security Administration’s Death Master File (DMF).
They’ll contact any beneficiaries as soon as they learn of the death, though that process may take longer.
It’s essential to understand how to claim life insurance, from filing the claim to receiving the payout. If the process proves to be a bit tricky, it’s advisable to seek the services of a law firm like Johnston Tomei Lenczycki & Goldberg LLC, which is well versed in this field. Contact us now to schedule a free consultation.
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