A life insurance policy does its job only if the money reaches the right person without delay. Two things make that happen: a clear beneficiary designation, and a family that knows how to claim.
Choosing a beneficiary
- Primary beneficiary. The person, or people, who receive the benefit. You can split it by percentage.
- Contingent beneficiary. The backup, who receives the benefit if the primary beneficiary has died. Always name one.
For a final expense policy, people usually name the person who will arrange the funeral: a spouse or an adult child they trust.
Mistakes that cause delays
- Naming a minor child. Insurers generally cannot pay a benefit directly to a minor. A court may have to appoint a guardian first. Ask an attorney about a custodian or trust.
- Naming “my estate”. The money then goes through probate, which takes time and can expose it to creditors.
- Not updating after life changes. Marriage, divorce and deaths in the family are all reasons to review the form.
- Vague wording. Use full legal names, dates of birth and relationships.
How a claim works
- Contact the insurance company. The phone number is on the policy. The agency that sold the policy can also help.
- Complete the claim form. Each beneficiary usually completes their own.
- Send a certified death certificate. The funeral home can order certified copies. Order several, because banks and other institutions ask for them too.
- Choose how to be paid. Most beneficiaries take a single payment.
How long payment takes
Once the insurer has everything it needs, many claims are paid within days or a few weeks. State laws set time limits and may require interest on late payments. A claim can take longer when death occurs during the first two years of the policy, because the insurer may review the original application, or when the documents are incomplete.
If the policy cannot be found
The National Association of Insurance Commissioners runs a free Life Insurance Policy Locator. You submit a request and participating insurers search their records for policies in the name of the person who died.
Is the benefit taxable?
According to the IRS, life insurance proceeds you receive as a beneficiary because of the death of the insured person generally are not included in gross income. Interest you receive on the proceeds is taxable (IRS guidance). A tax professional can advise on your situation.
The simplest way to help your beneficiary: tell them the policy exists, which company issued it and where the papers are kept.
This article is general information, not legal, tax or financial advice. Policy features, eligibility and prices depend on the insurance carrier, your state and your personal details.
