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Life insurance death benefits

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Life insurance comes with a number of advantages. One of the biggest draws is being able to financially 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, suppose you choose to buy a $1,000,000 life insurance policy. In that case, 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 are 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:

  1. Obtain the death certificate: The life insurance company will need to see a copy of the policyholder’s death certificate to ensure that the policy can be paid out.
  2. Locate 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 to 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.
  3. Contact the life insurance company. Notify the life insurance company that the policyholder has passed away.
  4. Initiate 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.” This form will ask you to fill out various information about the policyholder and will ask you to choose how you would like to be paid.
  5. Wait for the death benefit to process. Once the insurance company confirms the policyholder’s death, validates your status as a beneficiary, and ensures the policy is in good standing, you should 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, you may be wondering how much their life insurance payout will be. Many insurance experts recommend purchasing a life insurance policy with a death benefit equaling around seven to 10 times your annual salary. However, not everyone purchases the same amount of life insurance. The easiest way to determine the death benefit payout is to reference the policy documents.

How do you get the death benefit from life insurance?

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 for your death benefit, 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.
  • Installments: With installments, also known as the specific income option, the beneficiary receives the death benefit in batches over a set period of time. They continue to receive the payments until the death benefit runs out. Unlike annuities, installments are not paid out of an investment account.
  • Retained asset account: Retained asset accounts are essentially cash value checking accounts that earn interest. This option can be attractive to those who want access to their money in a lump sum, while also earning interest from it. Permanent life insurance policies utilize similar accounts wherein the death benefit is partially paid in a savings account.

You can choose which one best fits your circumstances.

Why was your death claim denied?

A death claim may 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 stated they were 90 years old in their insurance paperwork, the insurance company could deny the claim.

Another reason your claim could be denied is if the policyholder missed payments before their death. 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.

A claim payout delay might occur if the policyholder died prior to holding their policy for two years, if they lied on their application, or died while engaging in illegal activity. A delay could last months or even a year.

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.

Written by
Elizabeth Rivelli
Insurance Contributor
Elizabeth Rivelli is a contributing insurance writer for Bankrate and has years of experience writing for insurance domains such as The Simple Dollar, and NextAdvisor, among others
Edited by
Insurance Editor