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How Long Does Life Insurance Take to Pay Out?

Losing a loved one is always difficult. If you’re the beneficiary of their life insurance policy, you’ll need to file a claim on their life insurance policy. Having a clear understanding of the ins and outs of life insurance payouts can bring peace of mind in a difficult time in your life.

Throughout the process, it’s important to keep in mind that the insurance carrier will do their best to issue a payment as soon as the claim is verified.

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. 

How to file a life insurance claim

  1. Find and contact the insurance company:

    The first step in filing a life insurance claim is to contact the company holding the insurance policy. If you have the policy number available before starting the claims process, the insurer can look up the policy information for you once they’ve verified that you are the correct beneficiary. If you can’t locate the policy number, the carrier may require some additional information, such as the policyholder’s Social Security number and date of birth.

  2. Gather required documents and information:

    The insurance carrier is going to require an original death certificate and a completed claim form, which will ask for the following information: 

    • Name of the beneficiary
    • Address of the beneficiary
    • Date of birth of the beneficiary
    • Social Security number of the beneficiary
  3. Await claim verification:

    Based on the laws in your state, you should have an update on your life insurance claim within 60 days. Multiple life insurance policies may affect the amount of time it takes to receive a life insurance payout. 

  4. Maintain communication:

    The insurance carrier will likely contact the beneficiary if additional information is needed or paperwork is missing. To keep the claim moving forward, confirm the carrier has all required information and paperwork. You can continue to reach out to them for updates on the claim.

  5. Receive decision and notification:

    All beneficiaries on the policy will be notified of the carrier’s decision on the claim. If a denial is issued, the carrier will send a notification detailing their position. If your claim is verified, be on the lookout for a notification from the carrier. They’ll want to initiate a payment to the beneficiary as soon as able. 

  6. Life insurance payout:

    At Amica, we offer lump-sum payouts for both term and whole life policies. This means the beneficiary will receive the entire payout at once. 

The benefits of planning ahead

As a policyholder, keep your life insurance policy accurate and current. Be sure to inform all parties of their roles as beneficiaries and confirm you have their correct information. In turn, beneficiaries should keep the policyholder aware of any name or address changes.

The death of a loved one is devastating to a family. Ensuring that all policy information is up to date will provide you and your family with peace of mind.

Want to learn more about life insurance? Use our life insurance needs calculator​ to determine how much coverage is right for you. 

Want to learn more about Amica life insurance?

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ALIC00424 MAR-29