You might be thinking of going for life insurance and might wonder: how long does life insurance take to pay out? Well, it is not out of place to want to know if your loved ones would be financially catered for.
Let’s take a look at everything you need to know about life insurance and how long it takes to pay out
1. What is Life Insurance?
Life insurance is known to be the pact between a policy owner and a life insurance company. In the concept of life insurance, the insurer pays a certain amount of money to a named beneficiary when the insured is no more.
You should know that the policyholder is expected to pay a premium or regular upfront for the life insurance policy to be intact. You should also know that this insurance policy can expire after a number of years.
2. Types of Life Insurance
There are various types of life insurance available depending on your preferences. Whether you want a long or short-term insurance policy is all up to you.
Here are the types of life insurance you should know:
2.1. Permanent Life Insurance
Permanent life insurance is the type of life insurance that stays in place for life except the policyholder puts a hold on the payments of premium or stops the payment completely.
Permanent life insurance is of three types:
2.1.1. Universal Life Insurance
Universal life insurance is a type of permanent life insurance where payments made earns you interest. One distinct feature this type of life insurance has is flexible premiums. You should know that as time goes by, it can be adjusted.
Universal life insurance has a branch known as indexed universal life insurance. This type of insurance allows the policyholder to get a fixed rate of return on the money insured.
2.1.2. Whole Life Insurance
This is a type of permanent life insurance that piles up a cash value that would last a lifetime for the insured individual. You should know that the cash value life insurance in whole life insurance lets the policyholder make use of the cash for different purposes.
2.1.3. Variable Universal Life Insurance
This is a type of permanent life insurance that gives the policyholder the opportunity to invest the funds in separate accounts. You should know that it has elastic premiums.
2.2. Term Life Insurance
This type of life insurance was created just for a particular number of years. Here, you get to select the term you want. You can choose from terms like 5, 10, 15, or 20 years.
The term life insurance is of three types:
2.2.1. Renewable Term
This type of life insurance as the name implies can be renewed annually. It provides a bid for the particular year the policy was bought. You should know that the renewable term at not really expensive in the beginning.
2.2.2 Convertible Term
This type of life insurance lets the policyholders turn a term policy into a permanent policy.
2.2.3. Decreasing Term
This type of insurance is also renewable. It also has coverage that reduces the life of the policy.
3. Benefits of Life Insurance
There are several benefits of a life insurance policy. Some of these benefits include:
3.1. Coverage for Terminal Illness
There are benefits and endorsements known as riders that can help to boost or adjust your coverage. This grants you access to all your death benefits in some circumstances.
In some companies, they have a policy where for instance, if you have a terminal illness with less than 6 months to live, you can make use of your death benefit while you’re still alive. This will help cover expenses and other things regarding your care.
3.2. Payouts are Tax-Free
You should know that beneficiaries of your insurance policy will get a lump sum while your coverage is still very much effective. The life insurance payouts received are tax-free.
3.3. Coverage for Final Expenses
A life insurance company will cover for your all your emergency expenses including the cost of the funeral. A life insurance policy gives your beneficiaries the opportunity to pay for the cost of the funeral without making use of their personal savings.
4. How Life Insurance Policies are Issued
You should know that the way policies are issued differs. They can either be fully underwritten or simplified. Fully underwritten policies involve you taking a medical examination and completing lab work.
For the simplified issue policy, you’ll have to provide answers to questions regarding your health as you fill in the insurance application.
The simplified issue policy costs more than the fully underwritten policy because the insurance company does not have enough information regarding your health.
5. How Long Does Life Insurance Take to Pay Out
Life insurance payouts depend greatly on several factors:
- The cause of death
- The day you filed your claim
- Duration of the policy
- Laws governing the insurance payouts
- Required documents
You should know that when it takes a while for you to submit the required paperwork, it will also take a while to process your claim. In some states, life insurance companies are mandated to go through their list of policyholders in order to prevent death benefits from being unidentified.
It is important to note that once the required documents and paperwork are submitted, payouts can be made within 30 days of the death of the insured.
6. Life Insurance Payout Process
During the payout process, it is mandatory for the insurance company to complete different steps. They will have to fact-check the claim to make sure that there is no form of foul play with the insurance claims.
Additionally, they will conduct in-depth inquiries into the insured’s cause of death. Additionally, they are required to check all submitted documentation to ensure that all legal requirements are met while making life insurance claims.
7. Factors Affecting Life Insurance Claim
There are several factors involved when it comes to payments of death benefits. However, all states have laws and rules that govern the time the life insurance companies can use to pay out death benefits.
7.1. Contestability Period
This period is said to be the first two years of the issued policy. The insurance company can scrutinize a claim filed during this period to make sure that there are no mistakes or inadequacies.
This can lead to a kind of delay in the process. Another reason for the delay can be because of improper documentation or incomplete information when filling out the application.
7.2. Filling the Death Claim Quickly
It is not always easy to file a death claim after the death of a loved one. But, the earlier the insurance company is aware of the latest development, the faster they process the death claim.
One interesting fact about this whole process is that there are insurance companies that have specialists that can walk you through the process. They are there to help you prevent any form of delay on the death claims.
7.3. The Death Certificate
You should know that they are key procedures you must follow as a beneficiary to prevent delay in getting your insurance claim really fast. You’ll have to provide the necessary documents that show that the insured person died and has a death certificate.
Always remember that most insurance companies would need an original death certificate to be presented before anything can be done.
8. How are the Payouts to Beneficiaries Made?
Those who are beneficiaries of a life insurance payout can choose how they want to receive their money. Whether they want the funds sent via bank transfer or through a mailed check, it is all up to them.
You should be aware that there is also the liberty to choose the amount of money you want at once. These are some options for receiving the money:
One way to get your payment is by keeping the death benefit in an annuity. Here, you can get paid yearly for a particular period of time.
This method is ideal for those who have no immediate need for the benefit. The money also earns interest as it is an investment account.
8.2. Lump Sum
This type of payment method is tax-free, making it the most popular payout method. The lump sum method involves the expenses left by the policyholder.
8.3. Retained Asset
This is not a really popular method. In this payout method, the insurer keeps the money insured in an interest-bearing account. You should know that withdrawals can be made by check and interest can also be earned.
9. How to Make a Claim
It is easy to make an insurance claim after the death of the policyholder. The first step is to inform the insurance company of the death of the policy owner. For some companies, you can fill out the claim form online while for others, they can mail the form to you.
There you’ll have to fill out the name and the date of birth of the insured person. You also have to include a copy of the death certificate and the social security number of the insured person.
If there is a situation where a policy has more than one beneficiary, it is expected that all the beneficiaries of the policy should fill out the claim form to be able to receive payment.
Here are some required documents to get paid:
- You can go to the website and download the form from the company’s website. If you are unable to find the claim online, you can request for the form to be mailed to you.
- Next, fill out the form and make sure that you select the best payout option for you.
- An original copy of the insured’s death certificate should be attached to the form. You can also add authentic documents like your driver’s license or your passport to the form.
- Now that you are done, you can now submit the claim form either online or via mail.
It is very important to note that if an insurance company goes bankrupt, there are funds held in reserve that can be used to pay out abandoned death benefits.
10. In the End
Payments from life insurance are processed quickly. Simply provide the required documentation to begin the payout procedure. You should be aware that not only the wealthy can afford life insurance.
What matters is that an insurance provider makes sure that your loved ones have some sort of financial security when you pass away, regardless of your income level.