The process is fairly simple if you want to collect life insurance proceeds as the policy’s beneficiary. However, during the emotional period immediately following a loved one’s death, it can feel as if your entire world is falling apart, so it’s helpful to understand exactly what steps you need to take to access the insurance funds as quickly and efficiently as possible.
Not to mention, the need to access insurance money can be urgent if you’ve been dependent on the person who died for financial support and you are responsible for paying for the funeral or other expenses. Plus, unlike other assets, an estate’s executor typically isn’t involved with collecting life insurance proceeds since benefits pass directly to a beneficiary, so this is something you will need to handle yourself.
With this in mind, we’ve outlined the typical procedure for claiming and collecting life insurance proceeds and discussed how beneficiaries could deal with common hiccups. However, because all life insurance policies are different and some involve more complexities than others, consult with us, your Personal Family Lawyer® if you need any support or guidance.
Filing A Claim
Death benefits are not automatically paid out from a life insurance policy. You must first file a claim with the life insurance company to collect the proceeds. But before you start the claims process, you must first identify the beneficiary of the policy: are you the beneficiary, or is the policy set up to be paid to a trust?
We often recommend that life insurance proceeds be paid to a trust, not outright to a beneficiary. This way, the life insurance proceeds are protected from lawsuits, creditors, and even a divorce that a beneficiary may be involved with at the time they collect the funds.
In the event a trust is the beneficiary, contact us, your Personal Family Lawyer®, so we can create a certificate of trust that you (or the trustee, if the trustee is someone other than you) can send to the life insurance company, along with a death certificate, when it becomes available.
In any case, you (or the trustee) will notify the insurance company of the policyholder’s death by contacting a local agent or following the insurance company’s website instructions. If the policy was provided through an employer, you might need to contact the insured’s workplace first so that they can put you in touch with the appropriate insurance representative.
Many insurance companies allow you to report the death over the phone or by sending it in a simple form and do not require the actual death certificate at this stage. Depending on the cause of death, it can sometimes take weeks for the death certificate to be available, so this simplified reporting option can dramatically speed up the process.
From there, the insurance company typically sends the beneficiary more detailed forms to fill out, along with further instructions about how to proceed. Some of the information you’ll likely be asked to provide during the claims process include the insured’s date of birth, date and place of death, Social Security number, marital status, address, and other personal data.
Your state’s vital records office creates the death certificate, and it will either send the certificate directly to you or route it through your funeral/mortuary provider. Once you’ve received a certified copy of the death certificate, you’ll need to send it to the insurance company, along with all the other forms the insurance company requires you to complete.
Multiple Beneficiaries
If more than one adult beneficiary was named, each person should provide their signed and notarized claim form. If any primary beneficiaries died before the policyholder, an alternate/contingent beneficiary could claim the proceeds. In that case, however, they will need to send in the death certificates of both the policyholder and the primary beneficiary.
Minor Beneficiaries
Although policyholders are free to name anyone as a beneficiary when minor children are called, it creates severe complications since insurance companies will not allow a minor to receive life insurance benefits directly until they reach the age of majority, which varies between states – in some, it’s 18, and others it’s 21.
If a minor child is named as a beneficiary, you would need to go to court to be named as the child’s legal guardian to manage the funds until the child comes of age – and this is the case even if you’re the child’s natural parent. This is because unless you are specifically named as the guardian of the minor’s estate, you are not automatically considered the guardian of the child’s financial assets, even as their parent.
This is why you should never name a minor child as a life insurance beneficiary, even as a backup to the primary beneficiary. Rather than naming a minor as the beneficiary, it’s often better to set up a trust to receive the proceeds. In that case, the proceeds are paid into the trust, and whoever is named as trustee will collect the insurance proceeds and manage the funds for the child’s benefit until they come of age.
Moreover, within the terms of the trust, you can also spell out exactly how you’d like the trustee to manage the money for the child and even how the child can use the funds once they’ve reached adulthood.
In any case, you should consult with us, your Personal Family Lawyer®, to determine the best options for passing on your life insurance benefits and other assets to minor children.
Insurance Claim Payments
If you fill out the forms correctly and include a certified copy of the death certificate, insurance companies typically pay out life insurance claims quickly. Some claims are paid within one to two weeks of starting and rarely do claims take more than 60 days to be paid. Most insurance companies will allow you to collect the proceeds via a mailed check or transfer the funds electronically to your account.
Delayed Payouts
The payout of life insurance proceeds can be delayed for several reasons. Beneficiaries often face delays if the policyholder dies within two years of being issued. This is because most life insurance policies contain a contestability period.
Most contestability periods are typically between one to two years, and if the insured dies during this period, the insurance company can investigate the claim to ensure that the policyholder didn’t commit fraud on the policy application by lying about underlying health problems family medical history, or other conditions.
That said, provided the insurance company doesn’t discover fraud or other issues with the application, it will most likely pay the claim once the investigation is wrapped up. If problems with the application are found, the insurance company might pay a reduced benefit or even deny the claim, depending on what is uncovered.
The payout may also be delayed when homicide is determined to be the insured’s cause of death, and the beneficiary is a suspect. In this case, the payout is typically postponed until the beneficiary is cleared of involvement in the insured’s death.
A few other common reasons insurance payouts may be delayed include:
- The insured committed suicide within two years of the policy being issued.
- The insured died during illegal or criminal activities, such as robbing or driving while intoxicated.
- The insured omitted risky activities, such as smoking or skydiving, on the policy application.
Additional Information
Sometimes an insurance company will request you to send in a completed W-9 form (Request for Taxpayer Identification Number and Certification) from the IRS to process a claim. Most of the time, a W-9 is requested if there is some question or issue with the records, such as having an address provided in a claim form that doesn’t match the one on file.
That said, a W-9 is simply a way for the insurance company to verify certain information to prevent fraud, so don’t be alarmed if you’re asked for one. This is a standard verification practice, and it doesn’t automatically mean the company suspects you of fraud or plans to deny your claim.
We’re Here To Help
While collecting life insurance proceeds is often a simple process, don’t hesitate to reach out to us if you have questions or need support. As your Personal Family Lawyer®, we are here to ensure the process goes as smoothly as possible for you during what is likely to be an extremely trying time. Contact us today to learn more.
At Cheever Law, APC, we don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love, starting with a valuable and educational Family Wealth Planning Session. The Life & Legacy Planning Session will allow you to get more financially organized and make the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session (aka Family Wealth Planning Session) to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan.
To learn more about our one-of-a-kind systems and services, contact us or schedule a 15-minute introductory call today.