When is Term Life Insurance Death Benefit Paid Out?
I need life insurance for a temporary period of time, but when is term life insurance paid out?
Since term insurance is life insurance for a specific number of years, you have temporary life insurance that expires when your "term" of coverage ends.
How Long Does Term Insurance Last?
Usually, you may choose term coverage for a duration of 10, 15, 20, 25 or 30 years.
What Qualifies for Payout?
In order for a death benefit to be paid out on a term life policy the insured must pass away during the "Term" of the policy.
And, the life insurance policy must be "In Force", meaning the premiums are paid up and the coverage has not lapsed, or been cancelled.
So, if you buy a 10-year term life insurance, the payout would only happen if you pass away within the ten years the insurance policy provides coverage.
Example of Term Insurance Payout
Example: A 15 year term policy Effective 10/1/04 to 10/1/14
This means, in order for a death benefit to be paid out on the above policy, the insured would have to die sometime between 12:01 am on October 1, 2004 and before 12:01 am on October 1, 2014.
Make sure you review any questions you have about your life insurance coverage period with your insurance agent, broker or carrier, and get answers in writing from them.
Making a Claim on a Term Life Insurance Policy
In order for a pay out on your life insurance policy, your beneficiary will need to contact the insurance company after your passing to notify them of your death. Then, the beneficiary will have to fill out some claim forms that will be sent from the insurance company.
Ways to Receive the Payout from a Life Insurance Claim
There are two main ways to receive your money from a life insurance claim: Lump Sum or Installments Over Time.
Lump Sum – You may be offered a draft account, similar to a checking account, that allows you to withdraw money any time, in any amount, until the money is completely gone.
Installments Over Time – The insurance carrier will hold the money and may offer you some of the following options:
Limitations to Payouts on Life Insurance
There are a few common exclusions in a term policy including a 2-year suicide exclusion, which means if the insured dies as a result of suicide within the first two years of being insured, there is no payout (one year in some states).
War Exclusion – This exclusion excludes payment during times of war. There may be life insurance policies available on a group basis or through the government for active duty personnel.
Suicide Clause – This is a common clause that excludes payment of death benefits if suicide occurs in the first two years of the life insurance policy (two years in some states).
Aviation Clause – This clause would exclude death benefit payment during an aviation accident outside of one that occurs on a standard airline scheduled flight.
Hazardous Activities, Occupations and Hobbies – This would include pilots in the aviation exclusion listed above. Some additional exclusions may apply to specific activities including scuba diving, hand gliding, sky diving, and auto racing or motorcycle racing. If you engage in these high-risk activities make sure to clearly state them on your application for life insurance and understand whether the policy you have selected completely excludes payment due to death resulting from these activities, or charges an additional life insurance premium in order to cover them.
Life Insurance Policy Limitation
Contestability Clause – If the insurance company finds that there was misrepresentation during the term life insurance underwriting process (usually application/paramedical exam) within the first two years of the policy, the carrier can contest the contract and potentially not pay the benefits on a death claim. This is an important reason to accurately answer all questions during the application process. It makes no sense to falsely qualify for a life insurance policy only to have it not pay out on a claim when you most need it.
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