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What do life insurance beneficiaries need to know?

Whether you’re receiving money from a loved one’s policy or want to make it easier for your beneficiaries to collect the life insurance money you leave them, it helps to know the life insurance beneficiary rules and procedures.
Dec 23rd 2020
4 min read
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What does it mean to be a life insurance beneficiary?

A life insurance beneficiary is generally a person (although it can sometimes be a trust, estate or charity) who has been selected by the owner of a life insurance policy to receive the money from that policy (also known as the "death benefit") after the policy owner has passed away.

There are basically two types of beneficiary: primary and secondary. The primary beneficiary is the policy holder's "first choice" to receive the money. A secondary beneficiary is often named just in case the primary beneficiary has also passed away.

In most cases, a life insurance beneficiary is a family member or legal guardian of the insured. You may be the only beneficiary of the policy or there may be several beneficiaries who each receive a portion of the death benefit. You can be the executor of a person's will and still be a beneficiary.

 

What does a beneficiary have to do? And when?

Being a beneficiary doesn't require you to do anything unless and until it's time to make a claim. However, if you know you are named as a life insurance beneficiary in a loved one's policy, you might want to ask that person to tell you where you can find their policy if and when you need it. Being able to get your hands on the actual policy can help make the claim process easier and less stressful.

 

Making a claim

Step One: Gather documents and information. Before you can make a claim, you'll need to gather some information about the policy. That includes the name and contact information of the insurance company, the policy number, and the amount of the policy. As we discussed above, the best way to get all that information is to have the actual policy. But even some of the information - the name of the company and the policy number - can be enough to begin the process.

The other thing you may need is a copy of the death certificate, which serves as proof the policy holder has passed away.

Step Two: Alert the insurance company. If a loved one passes away, don't wait for the insurance company to contact you. Although some companies try to find out if any of their policy holders have died (and some states require them to try), there is no automatic process that alerts the company of a policy holder's death. Death benefits sometimes go unclaimed for years because the insurance company doesn't know the insured person has died. If you have the policy, use the contact information it provides. You can also go online to the company's website for information about making claims. Nowadays, many companies give you the option of calling with a claim or making the claim online.


Step Three: Provide follow-up information. When you make a claim, the insurance company will generally have you fill out a claim form where you may be asked, among other things, whether you would like the payout in a single lump sum or a series of smaller payments known as an "annuity." If you don't yet have "proof of death," you might be asked to provide it as part of the follow-up. The company can tell you what forms of proof it will accept.

 

How long does it take to get a payout?

How quickly you receive the money your loved one wanted you to have depends on the insurance company, the state, and the circumstances. In many states, the insurance company has 30 days to review your claim. At that point, the company can accept or deny the claim or ask you to provide additional information. If your claim is accepted, payment generally occurs right away. However, claim payment may be delayed in the case of a homicide or if there is suspicion of fraud. If the insured person dies during the first two years they owned the policy, there can sometimes be delays from six months to a year before the beneficiary is paid.

 

Checklist for policy holders and beneficiaries

If you're the person who owns the life insurance policy.

Let those you select as beneficiaries know you have selected them and how they can find your policy if they need to make a claim
If you're the beneficiary of a life insurance policy.
Ask the person who selected you to let you know how and where to get the policy in the event you need to make a claim
Make sure that, at the very least, you know the name of the insurance company and, ideally, the amount of the policy
If you need to make a life insurance claim, contact the insurance company as soon as possible - so you will have a better chance of getting the money in time to help cover final arrangements or other urgent needs.
 

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