Affordable Life Insurance Protection for Your Family
If you’re considering the purchase of term life insurance you may be wondering how the payout on a term life policy works.
What is a Payout for Term Life Insurance?
It’s the amount of money the insurance company pays out upon the death of the insured person.
Usually, this amount is known as the Face Amount or Coverage Amount which is listed on the Declarations Page of the life insurance policy.
When Does Term Life Insurance Payout?
A life insurance carrier will pay lout the death benefit proceeds upon notification of the death of the insured. This is called "Making a Death Claim" on the life insurance policy.
The insurance company requires the beneficiary to fill out a beneficiary claim form and send that back to the insurer with a certified copy of the death certificate.
Upon receipt of the necessary forms and death certificate, and review of these materials, the insurer will mail out a check to the beneficiary, usually within 30-60 days of receipt of the required information.
Who Receives the Payout from Term Life?
The person or persons designated in the insurance contract as "Beneficiary" will be the ones who receive the proceeds from the insurance policy.
For example, if two people are listed as primary beneficiaries, each to receive 50% of the death benefit, and the life insurance benefit is $1,000,000 – then each of the two beneficiaries would receive $500,000.
How Do I Get The Payout?
You contact the life insurance company of the deceased person and tell them you need to make a claim on a life insurance policy. They will verify who you are and if you are a beneficiary of the insurance policy.
Then, they will send you the proper forms you must fill out and tell you what you need to do to make a claim for the death benefits on the life insurance policy of the deceased person.
How Long Does It Take to Get The Payout?
Once the insurer has received all required documentation from the beneficiary, reviewed the information, and confirmed a claim should be paid on the policy, the money is usually sent in the form of a check within 30-60 days.
Payouts on Term Life Insurance Policies
When Term Life Death Benefits Are Paid Out
Typically, a term insurance policy benefits are paid when the insured has died, and the beneficiary files a death claim with the insurance company, submitting a certified copy of the death certificate. Many states allow life insurers 30 days to review the claim. Then they can pay it, deny it or ask for additional information.
Most life insurance companies pay out benefits within 30 to 60 days of the date of the death claim.
There is no set time frame but insurance companies are motivated to pay as soon as possible, after receiving bona fide proof of death, to avoid steep interest charges for delaying payment of claims.
What Could Delay Payouts on Term Life Policies?
Several situations can result in later payment of a death claim. If the insured died within the first two years after the life policy was issued, beneficiaries could face delays of 6 to 12 months.
The Reason: The Two-Year Contestability Clause.
Most life insurance policies contain this clause, which allows the insurance carrier to investigate the original application to ensure fraud was not committed.
As long as the insurer cannot prove the insured lied on the application, the death benefit will normally be paid. Most policies also contain a Suicide Clause that allows the company to deny death benefits if the insured commits suicide during the first two years of the policy.
Another scenario that could delay payment, not surprisingly, is when "Homicide" is listed as the cause of death on the death certificate.
In this case, a claims representative may communicate with the detective assigned to the case to rule out the beneficiary of the life insurance policy as a suspect.
If the beneficiary is a suspect, the benefit will be held until charges are dropped or he/she is acquitted of the crime.
New Choices in Payout Options on Term Life Insurance
Since the inception of the insurance industry more than 200 years ago, the death benefit payout to the beneficiary was always a lump-sum payment of the proceeds.
The default payout option of most policies remains a lump sum.
Installments and Annuities
More than 5 years ago there was a change in how life insurance payouts can be delivered to the policy’s beneficiaries.
These included an installment-payout option, or an annuity option, in which the proceeds and accumulated interest are paid out regularly over the lifetime of the beneficiary.
These choices give the policy owner the opportunity to select a pre-determined, guaranteed income stream of between 5 and 40 years.
For income-protection life insurance, most life insurance buyers prefer the installment option to guarantee the proceeds will last for the necessary number of years.
Pre-Death Benefits for Term Life Insurance
Traditionally, life insurance policies only pay out at the time of the policy holder’s death.
However, within the last 20 years, some life insurance companies have designed policies that allow their policy holders to draw against the face value of the policy in the event of a terminal, chronic or critical illness.
These policies enable the life insurance policyholder to be the beneficiary of their own life insurance policy.
The term for this is accelerated death benefit which is a rider the owner of the policy may attach to the coverage provided by the life insurance plan.
Filing a Claim for Death Benefit Payout
The life insurance company should be contacted as soon as possible following the death of the insured person to begin the claims process. The claims representative will request paperwork to process the claim.
The beneficiary of the insurance policy must obtain a Certified Copy of the Death Certificate.
This can usually be obtained through the county in which the named insured dies. If the insured died in a hospital or nursing home, the institution may have completed the certificate.
The death certificate has to be submitted to the insurance company address listed in the policy along with a statement of claim, which is sometimes called a "Request for Benefits" signed by the beneficiary.
Policies owned by revocable or irrevocable trusts must ensure that the insurance company has a copy of the trust document identifying the owner and the beneficiary of the life insurance policy.
The Bottom Line
Life insurance policies provide policy holders and their loved ones peace of mind that financial difficulties may be avoided in the event of a person’s death.
To expedite the claims process, and avoid errors and delays, accuracy is essential when submitting any documentation or communicating with the life insurance company.
Your insurance agent can help make sure that the claim form is filled out correctly and help answer questions throughout the claim process.
How Do Term Life Insurance Payouts Work?
Life insurance can help provide a financial safety net in the event of your death.
However, your beneficiaries should know how term life insurance pays out, and what steps they’ll need to take to claim their death benefit upon your passing.
Term life insurance payouts are generally provided in a lump sum.
However, some policyholders may opt for their beneficiaries to receive payouts in installments over a period of time, or for their entire life.
Requesting Your Term Life Insurance Death Benefit Payout
Life insurance benefits are paid after a policyholder has died, while the policy was still In Force. These death benefits are paid to the beneficiaries named by the policyholder in the policy.
For many insurance companies, beneficiaries must take three main steps to receive their payout:
1. File a Death Claim on the Policy
Term life insurance payouts begin with the filing of a death claim.
Make sure to contact the insurance company as soon as possible after the policyholder has died. Once this claims process has begun, your insurance representative will ask you to begin supplying necessary paperwork to process the claim.
If multiple beneficiaries were named with the policy, each may need to submit his or her own claim form if the primary beneficiary died before the policyholder, a contingent beneficiary (if named) can claim the term life insurance death benefit payouts.
2. Provide Proof of Death of Insured Person
Life insurance companies generally require a death certificate as proof that the policyholder has died. This usually must be a certified copy of the certificate, and can often be acquired from the county in which the policyholder has died.
If the policyholder died in a hospital or other medical facility, that institution may have completed the death certificate.
3. Wait for Approval of Payout
In general, term life insurance payouts are processed within 30 to 60 days of the claim’s date.
However, several factors can delay payment.
Terms Related to Payout of Term Life Insurance Death Benefit
Term Life Insurance Quotes
Top Pick – JRC Insurance Group
JRC Insurance Group helps you shop, compare and save on life insurance. Regardless of your age or health background, we'll shop our 40+ insurance companies and find you affordable life insurance you need to protect your family and fit your budget. Compare the best life insurance rates for savings up to 73%. Get Your FREE Quote.