What Should I Do When Making a Life Insurance Claim?

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There are several steps to making a life insurance claim.

Life insurance is a valuable estate planning tool.

No other financial asset can create an “instant estate” to care for your loved ones.

Full stop.

The death of a parent or spouse can leave the surviving family members financially vulnerable.

Leaving a life insurance policy can keep a roof over the heads of your loved ones and support the educational opportunities for any children.

If you are the beneficiary of a life insurance policy, how do you process the “death benefit” claim?

According to a recent Forbes article titled “How To Make A Life Insurance Claim,” the process often begins with a text, phone call, or letter informing you of your position as the life insurance beneficiary.

Making a life insurance claim requires a certified certificate of death.
Making a life insurance claim requires specific documentation.

When this happens, you should request the necessary paperwork for making a life insurance claim.

Ideally, the policy owner (usually the “insured”), when living, would have provided you with the policy contract itself.

Alternatively, he or she would have let you know where to find it.

The policy should be stored in a safe place.

To make the life insurance claim, you will need a certified copy of the death certificate and the claim for from the company.

Where do you get a certified copy of a death certificate?

These are usually requested and obtained from the local health department, oftentimes requested through the funeral home as part of that process.

Making a life insurance claim does not always go smoothly.

Although you may have been the beneficiary at one time, this could have changed before the insured died.

Policy owners can easily change their minds and their beneficiary designations.

They may also have selected a trust as a beneficiary, especially if they have multiple beneficiaries or minor beneficiaries in mind.

If you are no longer the beneficiary, the life insurance company will inform you.

They cannot release information about the new beneficiary without you taking legal action.

You must be able to prove the change was made under duress or undue influence.

That can be an uphill fight.

What if there is no in-force policy.

It is also possible the policy owner stopped paying premiums and let the policy lapse.

If this is the case, do not hesitate to act quickly to “reinstate” the policy.

Most companies have a “grace period” to safe a lapsed policy.

Another problem faced by beneficiaries making life insurance claims is the two-year contestability window.

One example would be a heavy smoker who died of lung cancer but did not disclose this on the policy application.

Another example would involve a policy owner who committed suicide.

In this case, the policy could be voided within two years following its purchase.

After the two year window, the ability to contest these issues typically expires.

When you have the information you need, start the process of making the insurance claim sooner rather than later.

It can take a while to receive the payout.

In general, you can choose how you would like to receive the proceeds.

You could select to receive a lump sum.

You could also have the money deposited in an access fund with the insurance company to earn interest and allow for withdrawals over a period of time.

You could also treat it similar to an annuity and receive annual installments.

Remember the lump sum payout of life insurance death benefits is income tax-free, but not the interest earned on it thereafter.

Reference: Forbes (June 8, 2020) “How To Make A Life Insurance Claim”