Life Insurance

A Behind-The-Scenes Look At The Life Insurance Claims Process

Ethos Life · Jul 10, 2020
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Life insurance protects the policyholders’ friends and family from bearing the financial burden caused by death. There is a wide range of difficult decisions to make when a loved one dies. The outpouring of support, while appreciated, may not provide all the answers a beneficiary needs to help them decide how to use the proceeds from a life insurance policy.

How To Make A Life Insurance Claim

The beneficiary named on the policy must present the insurance company with a death certificate issued by the county. If the insured person died in a care facility like hospice, assisted living, or a hospital, a facility employee will help the family file the proper paperwork to request a death certificate. If you work with a funeral home or mortuary, they will likely help you obtain the death certificate as well.

Accuracy is crucial when filing a claim for a death benefit. If the family worked with a life insurance agent to purchase the policy, that person should be on hand to help throughout the claims and payment process.

The life insurance company has 30 days to pay the benefit amount, deny the claim, or ask for more information about the insured person’s death. Insurance companies want to provide the death benefits to the beneficiaries as soon as possible, so the claim review process is typically done within the 30-day timeframe. If the claim review process will take longer than expected, the insurance company will provide the beneficiary with a status and request additional information if needed to process the claim. Interest is also paid on the death benefit if the payment is delayed. How the interest is calculated can vary by state, but is explained in detail within the policy.

How Beneficiaries Use The Insurance Money

The person named in the life insurance policy as the beneficiary may also be the person responsible for funeral and burial arrangements. These expenses can add up fast, so one of the first things that many people do with life insurance proceeds is pay off the bill from the funeral home and cemetery.

When making funeral arrangements, it’s important to have a trusted and unbiased support system present. During this stressful time, it may be tempting to purchase unnecessary and frivolous things with money that would be better spent creating a secure financial future for the survivors. Having someone present who has the best interests of the survivors in mind can help keep expenses under control.

Since the death benefit of life insurance isn’t typically subject to income tax, the beneficiary will likely receive the policy proceeds on a tax-free basis. The policy proceeds are determined by the available amount of the death benefit, adjusted by premium, applicable interest, and other factors that apply to the specific policy, like loans or accelerated death benefits. This may seem like a large amount of money. If a single lump sum is daunting to you, some life insurance death benefits are available in a variety of payment plans, known as settlement options. In this situation, the insurance company typically puts the policy proceeds into an annuity that pays the beneficiary a specified amount for a limited period of time or a percentage of the proceeds over a specific period of time. The options can vary, so check with the carrier at the time of claim to see what settlement options are available to you if you prefer something other than a lump sum benefit.

If the beneficiary relied on the insured person’s income for living expenses, they may choose to spend the life insurance benefit to replace lost household income and maintain their standard of living.

How To Make Good Decisions When Spending Life Insurance Money

When a loved one dies, there are many decisions to make that can’t wait. Funeral and burial arrangements require immediate attention. After that, it’s important to simply move forward with normal life as much as possible. Keep disruptions to a minimum. Aside from keeping the bills paid and handling the practical aspects of financial life, it’s acceptable to take some time to decide exactly what to do with proceeds from a life insurance policy.

The beneficiary of a life insurance policy is free to do what they please with the proceeds. There are no legal restrictions on how or when they must spend the proceeds. Life insurance covers a variety of financial needs created when the insured person dies.

Many experts recommend taking at least six months to consider all the options. There’s no need to rush the process of deciding what to do with the money. After taking care of immediate needs, it may be wise to pay off high-interest debt to increase future financial stability.

People who are faced with decisions about what to do with a large sum of money often receive a lot of input from friends and family. The death of a loved one is traumatic, and after a few months have passed, it may be wise to consult a trusted and experienced financial advisor. They can help explain the options when it comes to using the proceeds from a life insurance policy strategically for the good of the beneficiary’s short-term and long-term future.

With the help of a financial planner, it’s possible to invest the bulk of a life insurance payout and enjoy a periodic interest payment. Depending on the financial needs of the family and the size of the life insurance payout, it may be wise to preserve the principal in an interest-bearing investment account.

A financial planner can help the beneficiary look at their entire financial picture. Decisions about which debts to pay first, how to invest the money, when to spend it, and how to use it to provide for the future can be difficult. An advisor who has experience helping families plan their financial future after the death of a loved one is a great help in this situation.

If you’re interested in learning more about life insurance with Ethos, you can get started by filling out a few questions to get a quote.

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