1) The beneficiary has to file the claim. Insurance companies don’t automatically know when someone dies. As a result, there is over $1 billion in unclaimed death benefits. In order to receive your death benefit, it is the beneficiary’s responsibility to contact the insurance company and notify them of the insured’s death. When you do, be prepared to fill out some paperwork and provide a certified copy of the insured’s death certificate.
2) You may be able to file multiple life insurance claims. While most beneficiaries know about the insured’s primary life insurance policy, sometimes the insured will have additional policies that you’re not aware of. These can include group policies provided by the insured’s bank or credit union, mortgage life insurance policies to help pay off the remaining mortgage on a property, or even travel accident insurance that provides a benefit if the insured dies in a travel accident. As a beneficiary, make sure you’re aware of all of the life insurance policies the insured may have so you don’t miss out on potential life insurance benefits.
3) Your claim may be delayed or denied if the insured dies during the first two years of a policy. The first two years of a life insurance policy is called the “contestability period”. During this time, insurance companies have the right to investigate a policy and deny a life insurance claim if they discover fraud or misrepresentation on the initial application. Many life insurance policies also have clauses that deny death benefits if the insured commits suicide within the first two years of their policy.
4) You may have to pay taxes on your death benefit. Most death benefit payouts are exempt from taxes. However, there is a chance you will owe taxes if you fall into the “gift tax trap”. This occurs if the insured, the beneficiary, and the policy’s owner (the person who pays for the policy) are three different people. Although federal law allows you to gift certain amounts of money tax-free each year, the easiest way to avoid the gift tax trap is to ensure that there are only two people named on a life insurance policy.
5) You can choose how you want to receive your death benefit. When you file a life insurance claim, a lump-sum payment is usually the default method of receiving your death benefits. However, life insurance policies are now offering beneficiaries multiple options for how they want to receive their payment. You can choose to receive your payment in installments over a specified timeframe or in regular payments for the remainder of your life.
If your insurer is giving you a hard time with your life insurance, give us a call at ClaimCounsel to see if we can help.
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360 Degrees of Financial Literacy. “Claiming Life Insurance Benefits.” http://www.360financialliteracy.org/Topics/Insurance/Life-Insurance/Claiming-Life-Insurance-Benefits Consumer Reports. “How to claim an unclaimed life-insurance policy.” February 2013. http://www.consumerreports.org/cro/magazine/2013/02/how-to-find-lost-life-insurance-policies/index.htm Marquand, Barbara. Insure.com. “Life insurance tax surprise: The unholy trinity.” January 2016. http://www.insure.com/life-insurance/unholy-trinity-tax.html Marquand, Barbara. Insure.com. “The life insurance ‘contestability period’: 7 things to know.” October 2014. http://www.insure.com/life-insurance/life-insurance-contestability.html Roberts-Grey, Gina. Investopedia. “Life insurance Policies: How Payouts Work.” http://www.investopedia.com/articles/personal-finance/121914/life-insurance-policies-how-payouts-work.asp#ixzz48UqMKQni