What Is a Life Insurance Claim?

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Life insurance provides crucial financial protection for loved ones in the event of an individual’s passing. It can help surviving friends and family replace lost income, pay off debts that may otherwise become a burden, or transfer assets.

But to receive that support, beneficiaries must file a life insurance claim when the insured passes. This notifies the insurance company that it needs to pay a claim.

Whether you’re a policy owner curious how the process works or the beneficiary of a loved one’s policy, here’s what you need to know about life insurance claims.

Getting a Certified Copy of the Death Certificate

To start the life insurance claim process, beneficiaries will need to get a certified copy of the death certificate. The funeral home handling the arrangements can help with this. Beneficiaries may also request one online with their state health department. Identifying information, such as the deceased person’s name, date and location of death, and sex, will be required.

It’s a good idea to ask for a few copies of the death certificate; beneficiaries may need to provide one to creditors and other account holders. It can also help with the process of cancelling any subscriptions the deceased had.

Notifying the Insurance Company

Next, the policyholder’s insurance agent (or the insurance company, if it’s not clear who the agent is) needs to be notified of the death and the need to file a claim. They’ll detail what documents are needed and how to submit forms to complete the claims process. Many insurance companies allow individuals to submit a claim online, which can be faster than mailing in paper forms.

If a beneficiary isn’t sure who to contact because they can’t find a policy or contract, they may be able to find that information in the deceased person’s bank records. Recurring payments to a life insurance company are a good sign they had a policy with that company.

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Choosing How to Receive the Funds

Beneficiaries can usually receive the death benefit in several ways. Part of the claims process involves choosing a payment option, which may include:

Lump-Sum Payment

It’s possible to receive a single lump-sum payment of the entire death benefit.

Periodic Payments

Beneficiaries can receive payments for an extended period. They may be able to structure those payments to last for a specific time, such as 10 years or the rest of their life. The recurring payment amount depends on the death benefit amount, the length of time chosen, and the beneficiary’s age in the case of lifetime payments.

Interest-Only Payments

Interest-only payments place the death benefit in a designated account that allows beneficiaries to receive the interest those funds earn.

It’s crucial not to rush into a decision here. Many considerations go into determining the right payout option, so individuals need to make that choice within the context of their overall financial plan.

Factors That May Affect the Death Benefit

In addition to choosing a payment option, beneficiaries should understand a few other factors that may affect the death benefit:

  • The death benefit generally isn’t taxed. However, if one of the periodic payment options is chosen, beneficiaries may owe taxes on the interest the proceeds accrue.
  • Some policies that build a cash value allow the policy owner to take out withdrawals or loans from that cash value during their lifetime. These withdrawals often reduce the death benefit amount paid to beneficiaries.
  • If the beneficiaries named on the policy are no longer alive, the proceeds may be payable to the deceased person’s estate.

Ensuring Loved Ones Are Covered Financially

Life insurance can protect grieving loved ones from the financial strain a death may cause. It won’t replace the deceased, but it can ease the financial burden on their friends and family during a particularly trying time.

Colonial Penn can provide you with a free quote if you don’t currently have a policy or need more coverage. Curious to learn more or find specific answers about filing a claim? Speak with a representative today or visit colonialpenn.com.

Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing or service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisors.

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