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Insurance

How to File a Life Insurance Claim

6 Minute Read

If you’re reading this, chances are you’re going through a pretty difficult time. First and foremost, we want to say we’re sorry for your loss. Once the fog of grief clears a little, you’ll need to file a claim on your loved one’s life insurance policy. But you probably haven’t had to do anything like this before. That’s okay. We’ll walk you through it step by step.

How to Claim a Life Insurance Policy

The biggest question people have about life insurance is how to actually file a life insurance claim. The truth is, the process is a lot like filing for any other kind of insurance. Here are the basic steps:

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 big letters on the life insurance policy, so there’s no way to miss it. If you can remember the agent you worked with, ask for them specifically.  

2. Get copies of the death certificate. Make sure you get certified copies from the funeral director. Life insurance companies won’t take photocopies.And this is a little off topic, but it’s important: Get at least 10 certified copies of the death certificate. You’ll need them in order to cancel subscriptions, close accounts (like cell phones), get access to financial accounts, file income taxes, and contact utility companies to turn off services.

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3. Fill out the paperwork and send it in. Most insurance companies make their forms available online. If that’s not an option, just call the insurance company or agent to find out what you need to do. They’ll probably ask you to send the death certificate in the mail with the paperwork.

4. Specify how you want to be paid. Some insurance companies will pay in a lump sum, but there may be other options. You’ll need to tell the company your preference. Keep reading to find out more about that process.

Once all this is done, you wait. Depending on which 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, though, companies will pay out a life insurance claim a week or two after receiving the paperwork. If they take too long to pay out a claim, an insurance company faces hefty interest charges, so they don’t want to drag their feet too much!

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 Lump Sum Is Paid All at Once

Just like it sounds, a lump sum payout means the beneficiary (the person listed in the policy to get the payout) receives the money all at once. If you choose this option, it will allow you to immediately pay off any debt your loved one might have left behind. Once that’s done, you can take the time to grieve without a bunch of bills hanging over your head.

After a couple of months, when the chaos winds down, you’ll want to talk with your financial advisor about investing the rest of the payout so you and your family can use it later on if you need it.

Installments Are Paid Over Time

In this option, the insurance company pays out the benefit on a set schedule rather than all at once.   

There’s one important thing you need to know up front: You do not have to pay income taxes on the actual life insurance payout (which means you won’t have to pay anything if you take the lump sum), but you will be taxed on any interest the money earns during the length of the payout if you choose the installment option.

This option might also be called “interest income” or a “payout checkbook.” The life insurance company will offer to hold your money for you but will give you the interest the money generates. The insurance company keeps the money in an account, and you can write checks on that account whenever you need to. You can continue using this payout checkbook until you’ve used up all the money in the account.

There’s a fatal flaw with the installment plan: You don’t control the money when it’s not in your hands. Yes, you want the money to earn interest, but if the money is with the insurance company, you don’t get to decide where or how that money gets invested.

You’re much better off to take 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 maintain control of your financial situation, not leave it to some insurance company.

What to Do If Your Life Insurance Claim Is Denied

A life insurance claim is rarely denied. As long as you present the company with a valid death certificate, most reputable companies will pay the benefit they owe you. Generally, claims get denied because 1) the person stopped paying the premiums, 2) the person lied on the application, or 3) the cause of death fell outside the scope of the insurance coverage.

If you get a denial, here are the steps you need to follow:

  1. Contact your insurance company or agent. The insurance company cannot deny your claim without giving an explanation. Once you get the reasons, address these issues if they are incorrect.
  2. Contact your state’s department of insurance. If you have a valid policy and you’re getting the runaround, one call to the state authorities will generally get the process moving quickly.
  3. Contact a lawyer. Some insurance companies just won’t pay, even if your claim is valid. If that happens to you, you may have to resort to getting 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 didn’t have any life insurance at all.

If you need help finding the term life insurance you need, get with the folks at Zander Insurance who will walk you through the process from start to finish. It’s one of the most loving things you can do for your family.

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Do You Have the Right Coverage?  

Find out with our free 5-Minute Coverage Checkup!
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