In the wake of a death of someone close to us, a lot of complex emotions and disruptions can take place. Whether the death was something that was expected or completely out-of-the-blue, the resulting aftermath of death is rarely easy or simple. 

Adding to this difficult and chaotic time is the matter of life insurance. If the deceased had a life insurance policy, it’s only a matter of time before the questions start to arise: 

“What happens to [his/her] life insurance policy now?”

“Who receives the payout?”

“Is it rude to ask about this?”

“Who has the right to inquire and make decisions about [his/her] life insurance policy?”

“Do we need to hire an attorney to resolve this?”

Navigating the complicated actions that come with settling a life insurance policy payout isn’t always enjoyable, and unless you’ve done it before, there can be a lot of confusion. To help, Shell Mutual Insurance is clearing things up with this brief, informative blog post that contains some of the basic information related to what happens to a life insurance policy after the death of the insured. 

The Power Lies with the Beneficiary

Every life insurance policy is required to have at least one named beneficiary, but more often than not, there are multiple beneficiaries listed on the policy. These beneficiaries are designated by the insured at the time the policy was purchased, and after the insured has passed, it is up to the beneficiaries to make a claim with the issuer of the policy to start the payout process. 

The steps to take in order to start the claim process are as follows: 

  1. The insurance company must be notified of the passing of the insured. This has historically been done in writing via certified mail, but with the advent of the internet and telecommunications, it’s possible this can be done over the phone or even online. This is the single action that begins the payout process, but more actions may be required.  
  2. State laws dictate how long an insurance company has to review the claim request, ask for more documentation, and to either approve or deny the claim. Typically, 30 days are allowed for the insurance company to complete these actions. If more information is requested, it is up to the beneficiaries to provide this.  
  3. For those individuals who died after receiving life insurance coverage within a short period of time (less than two years), the claim process might be longer than normal.  
  4. After the death certificate has been provided to the insurance company and after all obligations are met by the beneficiaries, the insurance company is legally required to provide the payout. Most insurance companies will promptly pay on life insurance claims within a few weeks after receiving all of the documentation they need. 

Life insurance policy payouts can take multiple forms. For many beneficiaries, a lump sum payment is provided. In other cases, a structured annuity or managed asset account is provided. 

Other Factors That Can Delay a Payout

how does a life insurance policy work after someone dies 2As mentioned above, life insurance policies that have been in place for less than two years can take longer to pay out. The reason for this is something called a ‘contestability clause’. 

Virtually all life insurance policies have a contestability clause written into them. The purpose of this clause is to give the insurance company ample time and opportunity to investigate the validity of the payout and to ensure that no fraud has been committed. 

There are only two circumstances that would qualify the insured for fraud: 

  1. If the insured lied on the life insurance policy application (i.e., not disclosing certain health issues, tobacco use, etc.). 
  2. If the death never transpired and the insured was, in fact, still alive. 

In either of these cases, if the insurance company can prove beyond a reasonable doubt that the life insurance policy was fraudulently acquired (or that death never transpired), a denial of the claim may be issued. 

In complicated cases involving a lack of documentation, it might be beneficial to retain the services of a knowledgeable attorney to deal directly with the insurance company. 

Shell Mutual Insurance Makes Life Insurance Easy

None of us likes to think about what will happen after we die. However, when life insurance policies are used as strategic investment vehicles to protect our family and loved ones, they can be incredibly powerful and useful tools. 

To inquire about obtaining life insurance coverage for yourself or a loved one, contact Shell Mutual Insurance today.