There are many misconceptions when it comes to how your life insurance payments will work. However, with the help of your agent, you can ensure that you are well aware of the circumstances that govern the payment of benefits, and make any changes necessary to tailor these conditions to your advantage.
Naming Beneficiaries
The primary financial component of your life insurance policy is the death benefit. Upon your death, this money will be paid to a surviving party of your choosing, who you will be able to name at the time that you enroll in your policy. This is your policy’s beneficiary.
Beneficiaries are typically members of your family, though in reality, they typically can be anyone who has reached an age of legal majority. However, it is still important to choose someone whom you both know and trust. Usually, you should choose someone who will need to financial assistance upon your death. This might be a spouse, dependent relative or other person who will benefit from financial assistance because you are no longer alive to use your own income to support.
At this time, your financial advisor or estate planner can help guide you through the process of choosing the right beneficiary. They will be able to gain a clear picture of your long-term financial outlook, and help you determine in what ways life insurance could be beneficial no matter when you die.
Filing a Claim
The insured party under the life insurance policy does not file the claim for the death benefit; they will be dead when the process begins. At this time, the beneficiary will initiate the claim.
Usually, beneficiaries should begin the process of filing the death benefit claim as soon as possible after the insured’s death. There is no need to file on the date of death, nor at any time before final arrangements are made. However, as the process of settling the deceased’s estate and paying final expenses begins, it is at this time that the beneficiary will find a death benefit payout beneficial.
Circumstances differ on how insurers handle claims. The beneficiary will have to provide proof of death for the insured (I.e. a death certificate, etc.), and possibly other documentation to verify the deceased’s identity. At this time, the insurer might initiate an investigation to validate that the death did not occur due to an excluded condition.
For example, if someone dies in a murder or as a result of suicide, many policies will not pay benefits. There will also be an investigation if the cause of death is in any way ruled as an undetermined or suspicious event. Some policies also will not pay if the insured died within a certain time period (such as one year) of purchasing the policy. Claims will also be denied if the insurer finds that the policy was purchased under fraudulent pretenses.
What Life Insurance Covers
Upon payment of the death benefit, a beneficiary can use the funds in numerous ways. Plans can pay for costs like:
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Funeral expenses including a casket, burial costs, cremation services and more
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Co-signed debts such as mortgages
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Everyday expenses such as rent, utilities, groceries and more
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College tuition
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Childcare/dependent care
As discussed earlier, these benefits are tailored for beneficiaries that would suffer great financial loss after the policyholder’s death. In an obvious example of their perks, they can assist your spouse if they suddenly find themselves struggling to pay the mortgage on a single paycheck after your death. Keep in mind, it might take time after the filing of a claim for the beneficiary to receive the death benefit, so it helps a beneficiary to keep tabs on expenses arising as a result of the death.
How Much is a Life Insurance Benefit Payout?
The amount a beneficiary will receive depends on the policyholder and the life insurance policy. Most insurance professionals recommend that you purchase 10 to 12 times your annual income in life insurance. As such, the payout your beneficiaries receive can be directly linked to the financial assistance and income you would have provided them had you not passed away.
Every family’s situation is unique. Whenever you’re looking for a life insurance policy, be sure to speak with an insurance expert and a financial professional about how much coverage you and your beneficiaries will need.
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