Life Insurance

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

Ethos Life · May 31, 2018
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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.

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. Because they must pay interest on the face value of the policy if they delay the payment, insurance companies usually expedite the process. Unless the insurance policy is less than two years old or the death was a result of suicide or homicide, there probably won’t be a delay of the benefit payment.

Living Benefits

Some life insurance policies include a living benefits rider that entitles the policyholder to additional benefits beyond the death payout. If they are diagnosed with a terminal illness and have six to 24 months to live or have a qualifying chronic illness, they may be able to access a portion of their life insurance policy’s face value.

For terminally ill patients, healthcare costs not covered by insurance required in-home care, and not being able to work can lead to financial disaster for their families. A living benefits rider on their life insurance policy provides a much-needed source of money. This payment reduces the amount of money available to the policy’s beneficiary and it’s only accessible one time per policy.

There are no restrictions on how a policyholder can use the money from their living benefits rider. Like the proceeds from a life insurance benefit, payments from a living benefits rider are not subject to Federal income tax.

How Beneficiaries Use The Insurance Money

The person named in the life insurance policy as the beneficiary is usually also responsible for funeral and burial arrangements. These expenses 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 things that are unnecessary with money that would be better spent creating a secure financial future. Having someone present who has the best interests of the survivors in mind can help keep expenses under control.

Since life insurance proceeds aren’t typically subject to income tax, the beneficiary will receive the entire face value of the policy. This may seem like a large amount of money. Some life insurance death benefits are available in periodic payments. In this situation, the insurance company pays interest on the remaining principal. Any interest received from the insurance company is taxable. It’s acceptable to leave the life insurance money in an account held by the life insurance company. Interest accrues on the principal and the money is safe.

If the beneficiary relied on the insured person’s income for living expenses, they may choose to spend the life insurance money 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 OK to take some time to decide exactly what to do with money from a life insurance policy.

The beneficiary of a life insurance policy is free to do what they please with the money. There are no legal restrictions on how or when they must spend the money. 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 an unbiased 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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