The timeline for receiving a life insurance payout varies, with some beneficiaries receiving funds in as little as 14 days and others waiting up to 60 days. Several factors contribute to these differences, including the timing of claim submission, the accuracy of beneficiary information and state-specific regulations. Understanding the variables affecting life insurance payout time can significantly expedite the process.
How Long It Takes to Get a Life Insurance Payout
Updated: November 16, 2024
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Key Takeaways
Insurers generally take two weeks to two months to pay out life insurance claims.
Some factors that can delay the processing of life insurance claims include incomplete or inaccurate paperwork, cause of death and the contestability clause.
While there’s usually no deadline to file a claim, filing a claim sooner typically means receiving the benefit in a shorter time.
What Is a Life Insurance Payout?
A life insurance payout refers to the funds disbursed by an insurance company to the beneficiaries after the insured’s death, contingent on the type of life insurance policy:
Term Life Insurance: These policies cover the insured for a designated period, such as 10, 20 or 30 years. Should the insured pass away within this term, the beneficiaries will receive a death benefit, which can help cover lost income, debt or funeral costs. Term life is straightforward and does not include a cash value component. It is a cost-effective option for those seeking life insurance that pays out immediately upon the insured's death within the term.
Permanent Life Insurance: Unlike term life, permanent life insurance provides lifelong coverage as long as premiums are paid. It includes a death benefit and a cash value component, which grows tax-deferred over the policy’s life. Beneficiaries receive the death benefit, and the policyholder can borrow against or withdraw from the cash value during their lifetime. Due to the cash value component, the life insurance payout time for permanent policies may involve more considerations.
It's important to understand the life insurance claims process. While an insurer may normally delay the payment for necessary verifications, especially with permanent life insurance, the average life insurance payout time can be quite prompt if all conditions are met, including no disputes over the claim.
Permanent Life Insurance Loans and Withdrawals
In permanent life insurance, policyholders can access their cash value through loans or withdrawals. These two options differ in how they impact the policy. A life insurance loan lets you borrow against the cash value with interest, which does not directly reduce the death benefit as long as you repay it. However, an insurer may normally delay the payment of a cash value loan for processing, affecting the immediate availability of funds.
On the other hand, withdrawals directly reduce the cash value and can lower the life insurance death benefit payout. Unlike loans, you don’t need to repay withdrawals, but they permanently decrease the death benefit and the policy’s cash value. This may also impact the life insurance payout options available to beneficiaries, as the amount may be reduced if cash withdrawals are made.
Both loans and withdrawals may affect the overall life insurance payout timeline, so you should consider using these features carefully.
WHO CAN FILE FOR A LIFE INSURANCE DEATH CLAIM?
A life insurance beneficiary is the individual or entity designated to receive the insurance policy payout upon the policyholder’s death.
Only designated beneficiaries can file for a life insurance claim after the death of the insured. The life insurance claim process requires them to submit necessary documents, like the death certificate, to receive the funds. Once approved, beneficiaries typically get a lump sum life insurance payout, which helps cover various expenses. If multiple beneficiaries are named, the payout is divided according to the policy’s terms.
Factors That Might Delay a Death Benefit Payout
Several factors can affect the payout time for a life insurance benefit. Some aspects are within the beneficiary's control, like submitting accurate paperwork, while others, such as state regulations or the policyholder's cause of death, may be out of their hands.
Time Taken Before Filing a Claim
Promptly initiating the death claim process helps expedite the life insurance payout. Although some policies define specific filing periods, submitting the claim shortly after the policyholder's passing generally leads to faster processing.
Time Taken to Submit Documents
To file a claim, you need to submit relevant documents, including the policy number, information about the deceased, a death certificate and the original contract. You may also need to provide an obituary or other public notice of death. The sooner you provide these, the faster the average time to receive a life insurance payout.
Accuracy of Submitted Documents
Filling out claim forms vaguely or incorrectly or submitting the wrong documents can affect the life insurance payout timeline. Missing paperwork can also delay the death benefit payment. You must provide the insurance company with all the required paperwork to begin processing your claim, including the original policy, a certified death certificate and other information about the deceased. You may also need to include a Health Insurance Portability and Accountability Act (HIPAA) authorization.
Accuracy of Beneficiary Information
Ensuring that your information, as the beneficiary, is up-to-date can help expedite the process. The information may include your name, address and other personal information. Insurers may need to verify details if they're outdated or incorrect, which can slow the payout.
Insured’s Cause of Death
How the policyholder died can affect how long it takes to get a life insurance payout. For example, if the cause of death was a homicide, the insurer may need to investigate to ensure that the beneficiary wasn’t responsible or is not under investigation. Another example is if the cause of death was suicide, which can activate the delay clause in life insurance and potentially impact the payout.
Contestability Clause
If the policyholder dies within the first two years of taking out a life insurance policy, the insurance company may contest the claim for death benefits. The insurer may want to look more closely into the policyholder’s medical history to ensure that there weren’t any medical conditions they failed to disclose or that there wasn't a history of risky behavior.
State Laws and Regulations
State laws can influence the processing of life insurance claims. Some states require that insurance companies cross-reference with the Social Security Administration's death records. That process helps to prevent life insurance beneficiaries from leaving unclaimed benefits.
How Insurers Pay Out Life Insurance Benefits
Beneficiaries can select from various life insurance payout options based on their financial needs and goals. Each option offers different benefits, from immediate relief to long-term financial planning.
Lump Sum
A lump sum payment means receiving the entire death benefit at once. This option provides immediate financial relief and flexibility. However, prudent financial management is required to ensure the funds serve their intended purpose over the long term. This option is the typical way that insurers pay out death benefits.
Installment
Choosing installment payments allows you to receive the death benefit in smaller, regular amounts over a specified period. This option can provide a steady income stream and help you budget the funds more effectively.
Retained Asset Account
The insurance company holds the death benefit in an interest-bearing account. You can withdraw funds as needed, offering a blend of flexibility and the potential for the money to grow over time. This option adjusts the life insurance payout timeline as beneficiaries control the pace of withdrawals.
Interest-Only Payout
With an interest-only payout, beneficiaries receive regular interest payments on the death benefit while the principal remains with the insurance company. This option provides a source of income without depleting the initial benefit, which beneficiaries or heirs can later access as a lump sum. The interest-only payout option is typically available with permanent life insurance because these policies include a cash value component that allows for flexible payout structures.
Lifetime Annuity
A lifetime annuity provides beneficiaries with payments for life, ensuring they receive a steady income for as long as they live. This option can be ideal for those who seek ongoing financial security, as it offers a consistent income regardless of lifespan.
Fixed-Period Annuity
The fixed-period annuity option provides life insurance payments over a predetermined number of years, such as 10 or 20. Beneficiaries receive regular payments, which can offer predictable income for those who prefer structured financial support over time.
Researching the available life insurance payout options can maximize the financial benefit for your situation.
Common Uses of Life Insurance Death Benefits
Life insurance death benefits provide essential financial support to beneficiaries following the policyholder's passing. Life insurance money can cover immediate expenses and support long-term financial goals.
- Covering Final Expenses: One of the most common uses of life insurance death benefits is to pay for funeral and burial costs. Since these expenses can quickly add up, beneficiaries often rely on life insurance payments to manage them without financial strain.
- Paying Off Debts: Beneficiaries may use the death benefit payout to settle any outstanding debts the policyholder leaves, such as a mortgage, personal loan or credit card debt. Having the insurance money after the insured's death can help ease the financial burden on loved ones.
- Providing Income Replacement: For families that rely on the policyholder's income, the typical life insurance payout serves as a replacement. This financial support can cover daily living expenses and allow beneficiaries to maintain their standard of living, particularly if the life insurance pay is substantial.
- Funding Education or Future Goals: You can also allocate the payout of a life insurance policy toward education costs or other future expenses, such as a child's college tuition. This planning aspect allows beneficiaries to invest in their long-term financial well-being.
- Estate and Wealth Transfer: In some cases, life insurance disbursement serves as a method for wealth transfer, ensuring that assets reach specific family members or heirs. Beneficiaries often receive a life insurance payout as part of the policyholder's estate planning strategy, helping to minimize estate taxes and simplify wealth distribution.
Length of Time to Claim a Life Insurance Policy
Generally, there is no set life insurance claim time limit, but it's advisable for beneficiaries to file as soon as possible to initiate the payout process. Some policies may have clauses that specify a timeframe, usually in the form of a "reasonable time" after the policyholder's death, which could range from 30 days to a year.
Even if the policy does state a particular claim time limit, you may be able to make a claim outside of that period if you can justify the delay to the insurer. Some people may take months or years to file a claim, especially if they're unaware they're a beneficiary. However, as long as the insured dies while the policy is active, the beneficiary will usually still get the money. Extended delays may trigger a more thorough review of the claim, potentially causing further delays in the life insurance payout time or even denials if there are discrepancies.
If beneficiaries do not come forward, unclaimed life insurance benefits are turned over to the state's unclaimed property division. The time before this happens can vary by state but is usually three to five years.
How to File a Life Insurance Claim
Understanding how to file a life insurance claim and preparing in advance can make the process as smooth as possible, ensuring that you receive the financial support you need in a timely manner.
- 1
Obtain the Policy Details
The first step in filing a claim is to locate the deceased's life insurance policy. You'll need the policy number and the insurance company's name.
- 2
Notify the Insurance Company
Once you have the policy details, the next step is to inform the insurance company about the policyholder's death. You can usually do this by calling the customer service line. Some companies also offer online portals for initial notifications.
- 3
Gather Required Documents
After gathering all the necessary documents, submit the claim to the insurance company. You can do this by mail, fax or through an online portal. Ensure you fill out all forms accurately and thoroughly to prevent delays.
- 4
Await Claim Approval
Once the claim is submitted, the insurance company will review it. This process may involve verifying the cause of death and ensuring you have met all the policy conditions. Keep in touch with the claims department to track the progress of your claim.
- 5
Receive the Payout
After the claim is approved, you'll receive the death benefit. The method of payout — whether lump sum, installment or retained asset account — will depend on the life insurance payout options available in the policy or those you've chosen.
MONEYGEEK EXPERT TIP
If the insurer denies your life insurance claim, request a written explanation from the insurance company to understand why the life insurance company won't pay out. Then, consult with a legal advisor experienced in insurance claims. You may need to provide additional documentation or clarify existing information. In some cases, you may also have the option to appeal the decision.
Paying Taxes on Life Insurance Payouts as a Beneficiary
Generally, the Internal Revenue Service (IRS) considers life insurance proceeds as non-taxable income when received as a lump sum due to the death of the insured person. This means you usually won't have to include the payout in your gross income or report it on your tax return.
However, there are taxable exceptions for certain life insurance payout options. If you opt for installment payments instead of a lump sum, the original amount remains tax-free, but any interest earned on those payments is subject to income tax. If someone transferred the policy to you for money or other valuable considerations, part of the payout might be taxable.
Estate taxes are another consideration. While life insurance proceeds are generally not subject to income tax, they do form part of your estate. If the estate's total value exceeds the federal estate tax exemption limit, then federal estate taxes may apply. State laws can also have an impact. Some states levy their own estate or inheritance taxes, and the regulations can differ significantly.
Tips to Avoid Life Insurance Payout Delays
The average life insurance payout time can take up to 60 days, depending on the circumstances. Following these actionable tips can help expedite the life insurance claims process.
Submit Accurate Paperwork
Make sure you fill out all forms and documents accurately. Inaccurate or incomplete information can lead to unnecessary delays. Double-check all entries and consult with the insurance company if you have questions.
Provide All Required Documents
Don't skip any required documents, such as the death certificate, policy details or any other forms the insurance company may request. Missing paperwork can stall claims processing.
File the Claim Promptly
The sooner you file the claim, the quicker the payout process can begin. While there's generally no strict deadline for filing a claim, early submission can help avoid potential delays.
Keep Beneficiary Information Updated
Make sure all beneficiary information is current. Outdated or incorrect details can delay the payout or result in the life insurance being paid out to the wrong person.
Understand the Policy
Familiarize yourself with the policy's terms and conditions, including any clauses that might affect the timing of the payout.
Consult a Financial Advisor
If the policy involves other financial elements like annuities or investments, consider consulting a financial advisor to understand how these could affect the timing of your payout.
Pursuing your life insurance payout without delay will likely reduce the time you'll need to wait for benefits.
MONEYGEEK EXPERT TIP
Discovering whether a deceased loved one had a life insurance policy can be vital for accessing potential benefits. Start by checking their personal documents for any insurance-related paperwork. Contacting their financial advisor and employer or checking bank statements for premium payments can also offer clues.
Online tools like the National Association of Insurance Commissioners' Life Insurance Policy Locator Service can help identify policies by connecting with multiple insurance companies. Additionally, you can review their mail for policy statements or premium invoices.
FAQ About Life Insurance Payouts
Below are answers to some frequent inquiries about life insurance payouts. These help clarify the life insurance payout process, but always consult your policy and speak with your insurance provider for the most accurate information.
How do life insurance payouts work?
Life insurance payouts are issued to beneficiaries once the insurer confirms the insured's death and policy terms are met. Depending on the policy type, insurer's processes and other factors, beneficiaries might receive funds quickly or face delays as the life insurance claims process is completed.
How long does life insurance take to pay out?
The average life insurance policy payout time takes between two weeks and two months after the beneficiary files a claim.
How long does a beneficiary have to claim a life insurance policy?
For most life insurance policies, there’s no time limit for filing a claim. But the sooner you file a claim, the sooner you’ll receive the death benefit money.
Are life insurance payouts taxable?
Generally, life insurance payouts are not taxable. However, interest earned on installment payments and certain other scenarios can be taxable.
What disqualifies life insurance payout?
There are various reasons life insurance won't pay out, such as the policyholder's failure to disclose vital health information, fraud or if the death occurs under excluded circumstances, like suicide within the policy's contestability period.
What happens if you die a month after getting life insurance?
Dying right after getting life insurance, such as after a month, gives the insurer the right to investigate the claim. Life insurance has a contestability period, typically lasting two years. The insurer may review the application for misrepresentation or fraud during this time. If the policy is valid, beneficiaries should receive the average life insurance payout after death.
How does life insurance pay out benefits?
Life insurance pays out through different options, such as a lump-sum payment, installment payments or a retained asset account. The choice depends on the policy's terms and the beneficiary's preference.
How can beneficiaries claim life insurance after death?
Beneficiaries can initiate a life insurance claim after the death of the insured by submitting a death insurance claim with the insurance company. The life insurance claims process requires a completed claim form and a death certificate. Insurers will review these documents to approve the life insurance payout.
How much does life insurance pay out to beneficiaries?
The life insurance payout amount varies based on the policy coverage but can range from tens of thousands to millions of dollars.
How long do you have to pay life insurance before it pays out?
A life insurance policy becomes viable for a payout as soon as it’s active and the premiums are current. Some policies have a waiting period, usually around two years, during which certain claims may be restricted. After this period, life insurance payouts are typically available following the policyholder’s death.
Who gets the life insurance payout?
The life insurance payout goes to designated beneficiaries listed on the policy. These may be individuals or entities. If the policyholder doesn't name beneficiaries, the life insurance policy payout will go to the policyholder's estate.
What are the reasons life insurance won't pay out?
Common reasons why life insurance won't pay out include the death of a policyholder from excluded events, such as suicide within the first two years or fraud. Other reasons life insurance won't pay out include lapses in premium payments or misrepresentation on the application.
How long does life insurance last?
It depends on the type of policy. Term policies last for a set period, usually 10 to 30 years. Coverage ends after the term unless converted or renewed. Permanent plans, such as whole and universal life insurance, provide coverage for the policyholder's lifetime as long as premiums are paid.
How long does the coverage normally remain on a limited-pay life policy?
Limited-pay life insurance requires premiums for a set period, usually 10 to 20 years. After premiums are fully paid, the policy stays active for the policyholder’s lifetime. When the policyholder passes away, a death benefit payout is available for beneficiaries.
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About Mark Fitzpatrick
Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.
Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.