Life insurance comes with a number of advantages. One of the biggest draws is being able to financial support your family members after you pass away. Most life insurance policies include a death benefit, which your beneficiaries receive after your death. That money can be used to cover funeral expenses, repay outstanding debts and replace lost income.
What is a life insurance death benefit?
A life insurance death benefit is a sum of money your beneficiary receives when you pass away. Your beneficiary is the person (or multiple people) who you elect to receive your money—usually your spouse, children or other living heirs. When your beneficiary receives the death benefit, they can use the money however they want to.
After a loved one passes away, their beneficiary usually puts some of the death benefit towards funeral expenses or debts the deceased had. The remainder of the money can be used at the discretion of the beneficiary. The funds can be invested, donated, spent as income or even used to take a vacation.
When you purchase life insurance, you’re purchasing a policy for the death benefit. For example, if you choose to buy a $1,000,000 life insurance policy, it means your death benefit is $1,000,000, and the insurance company agrees to pay your beneficiaries that amount when you pass away. The more coverage you have, the more money your monthly premium will cost.
How does the payout process work?
If you’re the beneficiary on someone’s life insurance policy, it’s important to understand how the payout process works. When the policyholder dies, you won’t receive the death benefit payout immediately after.
There are steps you need to take to file a claim, validate your status and choose how you want to get paid:
- Find the policyholder’s life insurance policy documents. This will include important information like how much the policy is worth, who the beneficiary is and how you can file a claim. If you don’t have access to the policy documents, you can use the National Association of Insurance Commissioners’ Life Insurance Policy Locator Service.
- Contact the life insurance company and start the claim process. You will need to provide the policyholder’s death certificate and fill out some paperwork, including a form called a “request for benefits.”
- Wait for the death benefit. Once the insurance company confirms the policyholder’s death, validates your status as a beneficiary, and ensures the policy is in good standing, you’ll receive the death benefit. This can take a few weeks or a few months, depending on the claim.
If the insurance company asks you to take any additional steps, do them as soon as possible so you can get the death benefit quickly.
How do you determine the death benefit payout?
If your loved one passes away, hopefully you’ve discussed their life insurance policy and how much money it’s worth. However, that’s not always the case. If you are the beneficiary to someone’s life insurance policy, you should know how much money you’re entitled to.
The easiest way to determine the death benefit payout is to check the policy documents. It will say what the death benefit is worth, although it doesn’t account for fees or other costs that might be deducted. You can speak with an agent to determine exactly how much money you will receive.
How can you be paid the death benefit?
One of the advantages of a death benefit is that the beneficiary gets to decide how they want to be paid. There are several payout options, including:
- Annuity: If you choose the annuity option, the life insurance company puts the death benefit into an investment account. Every year, the beneficiary receives a portion of the death benefit plus the interest it earns until the money runs out.
- Lump sum: The most common option is to receive the death benefit in one lump sum. You can either receive a check for the full amount, or have the money wired into a bank account electronically.
- Specific income: With the specific income option, the beneficiary receives the death benefit in installments over a set period of time. They continue to receive the payments until the death benefit runs out.
You can choose which one best fits your circumstances.
Why was the death benefit denied?
If you file a life insurance claim and it gets denied, you could also be denied the death benefit. This doesn’t happen often, but it is possible.
Death benefits usually get denied when the life insurance company finds out that the policyholder has lied about, or withheld important information, like their age or health conditions.
For example, if the policyholder died at age 70, but they stated they were 90 years old in their insurance paperwork, the insurance company could deny the claim. It could also happen if the policyholder stopped making their payments. If the policyholder doesn’t notify their beneficiaries about the missed payments before their death, it can come as a big surprise when you file the claim.
If your life insurance claim is denied, you might be entitled to a portion of the death benefit. Usually, you’ll receive the value of the death benefit minus the amount of money in missed premiums.
Frequently asked questions
How long does it take to get the life insurance payout after someone dies?
In most cases, you won’t receive the death benefit immediately after the policyholder dies. The life insurance company has to process the claim, confirm the person’s death, confirm your status as the beneficiary and review other aspects of the policy. If the claim is approved quickly, you could receive the payout in as little as a week, or up to two months after the claim is filed.
Who claims the death benefit?
The beneficiary of the policyholder claims the death benefit. The beneficiary receives the full amount of the death benefit unless there are multiple beneficiaries. In that case, the policyholder typically specifies how much money each beneficiary will receive. It’s also the beneficiary’s responsibility to file a claim after the policyholder’s death.
How do I know the value of the death benefit?
If you’re not sure how much money you’ll receive in a death benefit, you can look at the policy documents. It should say how much the policy is worth. The rate might vary slightly, so it’s a good idea to contact an insurance agent and have them calculate the exact payout for you.