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Buying life insurance is easy enough. Yet, for it to be useful, you also need to know when and how quickly payouts will be delivered to your beneficiaries. You also need to understand your policy better to figure out what payout option works best for your estate planning.
The beneficiary will need to contact the life insurance company as soon as possible following the insured’s death to begin the claims process. Many insurance companies allow beneficiaries to file the claim directly through their website. If the insurance company has an offline claims process, the beneficiary might have to initiate the request over the phone or in writing. But no matter how the claim is filed, the individual will need to send in all the paperwork, including a death certificate and letters identifying the beneficiaries, etc., to the insurance company. This is why having all the documents needed to make the claim is crucial to get the payout on time.
While there is no set time frame, most life insurance benefits are usually paid within 30 to 60 days of filing a claim. Beneficiaries begin the process by filing a death claim with the insurance company and providing all the supporting documents along with a copy of the death certificate. Many states allow insurers 30 days to review the claim in entirety. After this, they can pay it out, deny it, or make a request for more information. Usually, companies are motivated to make payouts quickly to avoid incurring high-interest charges due to payment delays.
Several possible situations may cause the claims payment to be delayed. Beneficiaries can face delays of up to a year if the insured dies within the first two years of the policy’s issuance. This is due to the one- to two-year contestability clause that most policies contain to weed out fraud. Usually, if the insurance company is satisfied that there has been no lying, illegal activity, or omission of essential facts, the benefit is paid.
Payout choices can range from lump-sum payments to retained asset accounts, and installments to annuities. Decide what will work best for your beneficiaries based on your financial situation.