If you have a life insurance policy, the insurer will pay a sum of money, called the death benefit, to your beneficiaries after you pass away.
The death benefit can help your family to replace a portion of your income and cover a variety of expenses.
This compensation is usually paid to your beneficiary between 2 weeks to 60 days of making the claim. However, the length of time it takes to receive the money is determined by the reason of your death and the timing of your death.
How long does it take to receive a life insurance payout after death?
Generally, it takes anywhere between two weeks to 60 days to receive the life insurance payout after a claim submission. However, the exact timeline depends largely on when and how the insured died. Claims might get delayed if:
- The insured passes away within the first two years of the date of issue
A contest-ability clause is included in all life insurance policies. This means that if there is a major misrepresentation within the first two years, the insurer may contest and refuse the claim.
In the context of life insurance, material misrepresentation means lying to or withholding crucial information from the insurer. For example, if someone has a cardiovascular illness but fails to declare it on their application form, this is deemed substantial misrepresentation.
The contest-ability clause, which is normally effective for two or three years, helps to reduce insurance fraud. If the insured dies during this time, the insurer may postpone payment if it accuses the insured of lying.
- The insured dies while engaging in an illegal activity
The life insurance claim may also be delayed if the insured dies due to participating in criminal behaviour, such as driving under the influence or use of illegal substances. In these cases, the insurer will almost certainly conduct a comprehensive investigation to establish if the life insurance beneficiary is entitled to the death benefit.
- The insured is murdered
When there is a homicide, the insurer will withhold the benefit until all suspicions about the beneficiary’s involvement are cleared.
- Important documents are missing
Your claim can also be delayed if you did not submit all the requested documents with the claim form, or if you do not know the policy number.
How to file a life insurance claim after death
If you are a beneficiary on a life insurance policy and the insured has died, you should initiate the claim proceedings as soon as possible. Filing a life insurance claim is a simple and painless procedure, as long as you have the policy number and the required documents.
Here is what you need to do to receive a life insurance payout:
- Download the claim form from the insurer’s website. If the claim form is not available online, get in touch with the insurance company or the agent to get one.
- Fill out the claim form and choose an appropriate payout option.
- Attach a certified copy of the insured’s death certificate and a valid identification document, like your passport or driver’s license, to the claim form.
- Submit the claim form and relevant documents. Some insurance companies allow online claim submission, while others may ask you submit it via mail or in person.
Most insurers (e.g., Manulife, Sun Life, etc.) do not take more than 30 days to review life insurance claims. If everything is in order, you can expect to receive the proceeds within the next 30-60 days.
What do life insurance payouts cover?
Depending on the type of life insurance policy you purchase, the death benefit can assist your recipient in meeting a variety of financial requirements. Your surviving spouse or partner can use the funds to cover expenses such as mortgage payments, end-of-life bills, personal debts, school tuition fees, and day-to-day living expenses.
While most individuals buy life insurance to provide financial support to their family in the case of their death, you can also buy it to leave an inheritance to your loved ones or a charity. Some life insurance policies, such as whole life insurance, accumulate cash value that you can access during your life. You can withdraw it, borrow against it, or surrender the policy to meet financial obligations, cover expenses such as college tuition, or fund your retirement. If you do not repay the borrowed money, your death benefit will be decreased.
Life insurance policies cover death from natural causes, accidents, and violence. Most policies additionally cover suicide two or three years following the policy's inception date. You may be authorized with exclusions, which are scenarios in which the insurance carrier will not pay out. Exclusions will be explicitly stated in your policy document, which you should read and understand.
Who gets the life insurance payout?
The death benefit is paid to the life insurance beneficiary. The insurer will require you to name at least one beneficiary when you apply for coverage. You can name anyone as a beneficiary, including your spouse, children, parents, or even your pet.
The bottom line
After submitting a claim request, life insurance companies typically issue the death benefit within 15 to 60 days. However, some claims may be delayed or, in extremely rare cases, denied due to the circumstances surrounding the insured's death, material misrepresentation, and missing documents.
Frequently Asked Questions
What is the most common payout of death benefits?
The beneficiary of a life insurance policy can choose how they want to receive the payout. Most people select the lump sum option, in which the entire death benefit is paid in a single payment. Other payout options include:
- Specific income
The insurer releases the proceeds from the policy in installments. The payout period and the size of each payment depend on the death benefit. Insurance companies generally offers several options, and the beneficiary can choose the payment terms that work best for them.
- Lifetime income
The beneficiary can also convert the death benefit into an annuity and receive guaranteed payments for as long as they live. The amount of money the beneficiary receives with each payment depends on the policy value, their gender, and their age at the time of the death of the insured.
- Life income within a certain period
The insurance carrier makes regular payments for a specific period. If the beneficiary passes away before this period expires, the insurer will issue the remaining payments to the person designated by the beneficiary.
- Interest income
Another alternative is to keep the death benefit in an insurance provider's savings account and get regular interest payments until death. When the beneficiary dies, the original death benefit is paid to the person chosen by the beneficiary.
Keep in mind that while a life insurance payout is not taxable, any interest earned on it may result in a tax obligation.
How long do life insurance companies take to process a claim?
Life insurance companies generally take up to 60 days from the date of filing to process a claim. Some claims, however, may get delayed because of material representation, missing paperwork, or how the insured died.
Are life insurance payouts taxable?
Whether a life insurance payout is taxable or not depends on how the beneficiary decides to receive it. Life insurance payouts are usually not taxed when received as a lump sum. However, any interest earned on the death benefit counts as a taxable income. That means if you decide to receive the payout in small installments, you may receive a tax bill.
Can a life insurance claim be denied?
It is very rare for insurers to deny a claim, but it can happen. If the insured lied on the life insurance application, committed suicide within the first two years, or died while engaging in an illegal activity, the insurance company can refuse to issue the death benefit.
How long after death do you have to collect life insurance?
Once the policyholder dies, beneficiaries should initiate the claim process. Life insurance payouts usually occur between 2 weeks to 60 days after the claim being filed. However, the period can fluctuate based on the cause and date of death. Delays may occur due to factors like illegal activities, death within the first two years of the policy, or incomplete documentation.