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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.
Term life insurance payouts are generally provided in a lump sum. However, some policyholders may opt for their beneficiaries to receive payouts in installments.
Requesting Your Death Benefit
Life insurance benefits are paid after a policyholder has died. These benefits are paid to the beneficiaries named by the policyholder.
For many insurance companies, beneficiaries must take three main steps to receive their payout:
1. File a Death Claim
Term life insurance payouts begin with the filing of a death claim.
Experts recommend contacting the insurance company as soon as possible after the policyholder has died. Once this claims process has initiated, your insurance representative will likely 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 payouts.
2. Provide Proof of Death
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
In general, term life insurance payouts are processed within 30 to 60 days of the claim’s date. However, several factors can delay payment.
- A newer policy. If the policyholder purchased the insurance plan within two years of his or her death, beneficiaries may have to wait between six months and a year to receive benefits. That’s because many policies have what’s known as a contestability clause. This clause allows insurers to further investigate the claim, to ensure that no fraud has taken place.
- Suicide. Most policies also have a clause that allows benefits to be denied if the policyholder committed suicide within two years of having purchased the plan.
- Homicide. If homicide is listed on a death certificate, insurers may delay payments until the investigation rules out the beneficiary as a suspect.
If you have additional questions about the term life payout process, you can speak with a licensed life insurance agent at 1-800-966-7169 to learn more.