How a Life Insurance Death Claim Is Paid

A life insurance claim is one of the more straightforward claims in insurance. There is no adjuster inspecting damage and no negotiation over the amount. The face amount is stated in the contract.

What the process does require is documentation and the right person filing it.

The basic sequence

1. Locate the policy. You need the insurer's name and, ideally, the policy number.
2. Notify the insurer that the insured has died. Most insurers have a claims line and an online notification form. Any beneficiary can start this.
3. Obtain certified death certificates. The funeral home ordering them can usually get several at once, which is worth doing because banks, employers, retirement plans and other institutions will each want one.
4. Complete the claim form. Each beneficiary generally files their own. The form asks for identification and, in many cases, a Social Security number and a payout election.
5. Submit the certified death certificate and the form, along with any additional documentation the insurer requests. A notarized death certificate or documentation of your legal authority to make the request may be required in some circumstances.
6. The insurer reviews and pays. Straightforward claims are often paid within weeks.

Each beneficiary files independently, so one beneficiary's delay does not have to hold up another's payment.

What can slow a claim down

• Death within the contestability period. If the insured died within roughly the first two years, the insurer commonly investigates the application, which typically means requesting medical records. This is routine and most such claims are paid. The mechanics are covered in the contestability period and what can void a policy.
• An unclear or outdated beneficiary designation, including a predeceased beneficiary with no contingent named, or a designation that does not identify the person clearly. See naming a life insurance beneficiary.
• A minor beneficiary, which typically requires a guardian or custodian to be appointed before funds can be released.
• The estate as beneficiary, which requires letters of administration or the equivalent and generally means probate.
• A pending cause of death determination, where the death certificate lists the cause as pending.
• Incomplete paperwork, which is the most common and most fixable cause.

Payout options

Beneficiaries usually have a choice about how to receive the money, and the choice can often be deferred briefly while things settle.

• Lump sum, a single payment of the full amount. This is the most common election.
• Retained asset account, an interest-bearing account maintained with the insurer that the beneficiary draws on using drafts, functioning somewhat like a checking account. The full amount is available at any time. Ask about interest crediting and whether the account carries federal deposit insurance, since it is an insurer obligation rather than a bank deposit.
• Installments or a fixed period option, paying the proceeds over a set number of years.
• Life income or annuity options, converting the proceeds into a stream of payments.

There is no obligation to accept a default. If you are handed an account you did not ask for, you can generally request the full amount by draft or transfer.

Taxes

The death benefit is generally not taxable income. Life insurance proceeds received because of the death of the insured are generally not includable in the beneficiary's gross income and generally do not have to be reported.

Several qualifications:

• Interest is taxable. If proceeds are held by the insurer and paid later with interest, or paid in installments, the interest portion is taxable and typically reported to you on a tax form.
• Transfer-for-value. If the policy was transferred to the beneficiary for cash or other valuable consideration, the exclusion may be limited, with certain exceptions.
• Estate tax is a separate question from income tax. Proceeds can be included in the insured's gross estate where the insured held incidents of ownership in the policy at death, and a three-year lookback applies to certain transfers made before death. Whether that matters depends on the size of the estate.
• Accelerated death benefits paid during life have their own tax rules.

These are federal tax questions with real complexity, and state treatment can differ. A tax professional is the right source for your own situation, not a general article.

Finding a policy you cannot locate

Substantial amounts of life insurance go unclaimed because beneficiaries simply do not know a policy exists.

The NAIC Life Insurance Policy Locator is a free national tool for this. You submit a request using information from a valid death certificate, including the deceased's Social Security number, legal name, date of birth and date of death. Participating insurers search their records through a secure portal, and if a policy is found and you are the beneficiary or the authorized representative, the company contacts you directly. If nothing is found, or you are not the beneficiary, you will not be contacted.

Points worth knowing before you use it:

• It cannot be used to search for policies on living people.
• Searches can take a considerable time, so submit early and do not treat silence in the first weeks as an answer.
• One request covers all participating companies, regardless of where the deceased lived, so there is no need to file separately by state.
• Insurer participation is voluntary, so a no-result answer is not conclusive proof no policy exists.

Other places to look: the deceased's tax records for premium payments, bank statements for recurring drafts to an insurer, employer benefits records, mortgage and loan files, safe deposit boxes, address books, and your state's unclaimed property office.

If the insurer will not pay

Start by asking for the reason in writing, then:

• Ask what documentation is missing, since incomplete files are the most common cause of delay.
• Check your state's prompt payment rules. Many states require insurers to act on claims within set timeframes and may require interest on delayed payments. This varies by state.
• File a complaint with your state Department of Insurance, which handles complaints against state-regulated insurers.
• Consult an attorney if the denial rests on a contested legal question such as materiality of an application statement.
• Check the state guaranty association if the insurer is insolvent. Every state has one covering life insurance obligations within limits set by state law.

Making it easier for the people who will file

The most useful thing a policy owner can do is remove the search from the process.

• Tell your beneficiaries the policy exists, and give them the insurer's name. That alone resolves most unclaimed benefit situations.
• Keep policy documents somewhere accessible, and note that a safe deposit box may be sealed at death in some states.
• Keep beneficiary contact information current with the insurer.
• Review designations after life events.
• List every policy in one place, including employer group coverage and any final expense coverage, since households often have more policies than anyone remembers.

Claim procedures, documentation requirements, prompt payment rules and guaranty association limits vary by insurer and by state, and the policy documents control. For a specific claim, contact the insurer, and for a complaint, your state Department of Insurance.

To get connected with licensed carriers and agents who write life insurance in your state, you can request life insurance quotes.