How Long Does Life Insurance Take to Pay Out?

Factors affecting payout timelines and common challenges

Policy product/type

Every individual’s situation is unique, and it’s possible your loved one’s policy was customized to fit the details of their life. The different coverages and variations of life insurance policies can have an effect on life insurance payouts. 

• Term life insurance: Term insurance provides coverage for specified periods of time. This coverage is popular due to it being practical and budget friendly for those newer to life insurance.
• Whole life insurance: This type of coverage offers protection throughout the entirety of your life. Whole life insurance policies accumulate cash that can be borrowed against during your lifetime.

Beneficiary designation and actions

There could be issues related to beneficiaries that could affect your life insurance payout. You may be the only beneficiary or one of many. Common problems associated with beneficiaries are:

• Discrepancies or ambiguity around the designations of beneficiaries.
• Disputes related to the beneficiaries – someone may assert that the policyholder was forced to change or add beneficiaries. It may be left to the courts to determine how the funds are distributed.  
• The insurance carrier will need to contact the beneficiaries. Any missing information or incomplete documentation could cause a delay. 

If the policyholder does not name any beneficiaries, or if their primary and contingent beneficiaries have preceded them in death, the proceeds will be left to the estate. If this happens, creditors are able to garnish payouts for unpaid debts. As a policyholder, to prevent this from happening, make sure to name primary and contingent beneficiaries. If you’re unable to name any friends or family, you can choose a charity.

Cause of death

The first two years of the life insurance policy is called the contestability period. If death occurs during this period, the insurance carrier will likely investigate the cause. Death overseas or inconclusive causes of death can also impact payout timelines. 

Policy exclusions

There are circumstances in which the carrier may deny the life insurance claim. For example, if the carrier finds that the death was caused by an undisclosed known pre-existing condition, they may issue a denial. Here are a few factors that may lead to a denial:

• Undisclosed risky activity: Death caused by activities like sky diving, rock climbing or scuba diving.
• Illegal activity: There may be exclusions if the death was caused by or occurred during an illegal activity.
• Suicide: The insurance carrier may exclude suicide entirely. If suicide is not excluded but occurs during the contestability period (first two years of the policy), the claim may be denied, but the carrier may refund any premiums paid toward the policy.

It’s best to refer to the insurance carrier for a comprehensive list of exclusions and state specific guidelines. 

Legal and regulatory factors

Just like home and auto insurance, life insurance is regulated by the state. Most state laws require carriers to pay out claims within a certain amount of time, typically 30 to 60 days after all claims forms and documents are received. If the carrier issues a payment outside of state-mandated timelines, they may be subject to a fine.

If the cause of death is homicide, the carrier may need to wait for the investigation to conclude before issuing payment. They’ll want to ensure that any beneficiaries to the policy are not responsible for the death of the policyholder.

Average time frame for payouts

Typical payout timelines

• Term insurance: If the policyholder passes away during the policy period, beneficiaries can file a life insurance claim and receive the payout quickly and tax-free. If a term policy expires, the carrier may offer yearly renewals. Beneficiaries will still receive payouts under renewal policies.
• Whole life insurance: Payouts will factor in the cash value associated with this type of policy. The carrier is going to verify that any money borrowed has been repaid. If not, it will be subtracted from the payout. For example, if the policy is $100,000 and $20,000 has been withdrawn, the beneficiary will receive $80,000 unless the $20,000 is repaid before the policyholder passes away. This information should be readily available to the carrier so it’s unlikely to delay payment.

Industry standards and regulations

No matter the insurance product or carrier, the policy can be canceled due to non-payment. If the policyholder passes away before reinstating the policy, it’s unlikely that the beneficiary will be able to file a claim.

However, there is a grace period between non-payment and cancelation, during which the policy is still active. If death occurs during the grace period, the carrier is required to review your life insurance claim for payment.

As a life insurance policyholder or beneficiary, you want reassurance that the funds will be available for you and your loved ones when you need them.

The National Association of Insurance Commissioners (NAIC) is an organization that supports state insurance regulators by setting standards and best practices for insurance companies to abide by. One of their main functions is consumer protection. The NAIC assists states in monitoring the financial stability of insurance companies. If an insurance company becomes insolvent, the state will step in to pay any obligations. That means you’re protected if your insurance company goes out of business.