If you’re reading this, you’re probably going through a pretty tough time. First of all, we want to say that we are sorry for your loss. Once the fog of grief lifts a bit, you’ll need to make a claim on your loved one’s life insurance policy. but you probably haven’t had to do anything like this before. it’s okay. we will guide you step by step.
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how to claim a life insurance policy
The biggest question people have about life insurance is how to file a life insurance claim. The truth is that the process is very similar to applying for any other type of insurance. These are the basic steps:
Reading: Life insurance how to claim
1. contact the insurance company or agent. They should be able to explain their process for filing a claim. The name of the insurance company will be in large letters on the life insurance policy, so there is no way to miss it. If you can remember the agent you worked with, ask for them specifically.
calculate how much term life insurance you need
2. obtain copies of the death certificate. be sure to get certified copies from the funeral director. life insurance companies do not accept photocopies. and this is a bit off topic, but it’s important: get at least 10 certified copies of the death certificate. You’ll need them to cancel subscriptions, close accounts (such as cell phones), access financial accounts, file income taxes, and contact utility companies to turn off services.
3. complete the paperwork and submit. most insurance companies have their forms available online. if that’s not an option, just call the insurance company or agent to find out what to do. You will probably be asked to mail the death certificate with the documentation.
4. specify how you want to be paid. Some insurance companies will pay a lump sum, but there may be other options. you will have to tell the company your preference. read on to learn more about that process.
once all this is done, you wait. Depending on the state you live in, an insurance company could have up to 30 days to review the claim and accept or reject it. In most cases, however, companies will pay a life insurance claim within a week or two of receiving the paperwork. if they take too long to pay a claim, the insurance company faces high interest charges, so they don’t want to take too long!
How are life insurance claims paid?
Life insurance claims are paid in two basic ways: in a lump sum or in installments over time. here’s a breakdown of each option.
a one-time lump sum is paid
Just as it sounds, a lump sum payment means that the beneficiary (the person listed on the policy to receive the payment) receives the money all at once. If he chooses this option, it will allow him to immediately pay off any debt your loved one has left behind. once that’s done, you can take the time to cry without a bunch of bills hanging over your head.
After a couple of months, when the chaos subsides, you’ll want to talk to your financial advisor about investing the rest of the payment so you and your family can use it later if you need to.
fees are paid over time
In this option, the insurance company pays the benefit according to a set schedule instead of paying all at once.
There’s one important thing to know up front: You don’t have to pay income taxes on the actual life insurance payout (meaning you won’t have to pay anything if you take the lump sum), but you do pay taxes on any interest the money earns over the life of the payment if you choose the installment option.
This option could also be called “interest income” or “pay stub.” the life insurance company will offer to hold your money for you, but will give you the interest that the money earns. the insurance company keeps the money in an account and you can write checks on that account whenever you need to. you can continue to use this paycheck until you have used all the money in the account.
There is a fatal flaw with the installment plan: you do not control the money when it is not in your hands. yes, you want the money to earn interest, but if the money is in the hands of the insurance company, you can’t decide where or how that money is invested.
You are much better off taking the lump sum. then you can go to your financial advisor and choose the mutual funds you want to invest in yourself. you want to stay in control of your financial situation, not leave it in the hands of some insurance company.
what to do if your life insurance claim is denied
Rarely is a life insurance claim denied. As long as you provide the company with a valid death certificate, most reputable companies will pay the benefit you are owed. Claims are typically denied because 1) the person failed to pay premiums, 2) the person lied on the application, or 3) the cause of death fell outside the scope of insurance coverage.
If you receive a denial, here are the steps to take:
- Contact your insurance company or agent. The insurance company cannot deny your claim without explanation. once you get the reasons, fix these issues if they are wrong.
- contact your state insurance department. if you have a valid policy and are getting runarounds, a call to state authorities will usually move the process forward quickly.
- Contact an attorney. Some insurance companies simply won’t pay, even if your claim is valid. if that happens to you, you may need to use an attorney. but this is rare, and we hope you never have to deal with it.
It’s painful to think about your loved ones dealing with a life insurance claim on you, but it’s nothing compared to what they would go through if you had no life insurance at all.
If you need help finding the term life insurance you need, we recommend Ramsey’s trusted provider, Zander Insurance, to guide you through the process from start to finish. it’s one of the most loving things you can do for your family.