Families and survivors often depend on life insurance benefits after a loved one passes away. These benefits may be necessary to pay for funeral or memorial expenses and may be needed for final medical costs as well as for everyday bills. If the person who has passed away was a breadwinner, life insurance money might be necessary to keep the household moving forward financially.
In most cases, life insurance payouts occur within a few weeks of the life insurance company being notified of the death and receiving a death certificate. However, there may be times when an insurance payout is not forthcoming. For example, if a death occurs within two years of a new life insurance policy, insurance companies may be likely to review the claim with a closer eye. It can take a longer time for the evaluation to be complete. Also, paperwork and the process itself can cause delays. An insurer may claim a beneficiary is not entitled to benefits or that there is no policy covering the death. This may occur if the person who has passed away missed insurance payments.
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Types of Insurance
There are several different types of insurance that a loved one may choose to provide for their families after their death:
1. Individually Owned Life Insurance Policies
This is the type of life insurance policy used by most people and probably the most familiar to the public because of advertisements on various forms of media. An individual policy usually takes one of the following forms:
- Term life: This is insurance which covers you for a set period (term) of one or more years. It pays a death benefit only if you die during that term. Term insurance generally provides the largest immediate death protection for your premium dollar.
- Whole permanent life insurance: This insurance protects you for as long as you live. With the most common type, called straight/ordinary life insurance, you pay the same premium for as long as you live. However, the premium may be higher than you would initially pay for the same amount of term insurance. But these premiums are smaller than the term life premiums you would eventually pay if you were to keep renewing a term policy until your later years.
- Universal permanent life insurance: This is insurance where the premiums you pay, less expense charges, are deposited into a policy account that earns interest. Charges for the insurance are deducted from the account. Insurance continues as long as there is enough money in the account to pay the charges for the insurance. The cash value will depend on the interest earnings which change with the market rate. Flexible premium policies let you vary the death benefit and you can vary the premium payment or skip payments if you wish.
- Variable life insurance: This insurance is one where the death benefits and cash values depend upon the performance of the investments, such as stocks and bonds, underlying the policy. These policies are so investment dependent, they only can be sold by an agent registered as a securities dealer.
- Endowments: These insurance policies pay a sum or income to you if you live to a certain age. If you die before the specified age, the death benefit is paid to the person names as beneficiary.
- Combinations: Different types of insurance policies can also be combined. For example, you can buy whole life insurance for lifetime coverage and add term insurance for the period of your greatest insurance need.
2. Employer-Based Life Insurance
After individually owned policies, this is the most popular way for people to obtain life insurance. The most popular type of insurance is group-term life insurance which provides a death benefit payable in a lump sum to the employee’s designated beneficiary. These policies are usually renewable annually. The employer (usually) pays for most (and in some cases all) of the premiums. The amount of your coverage is typically equal to one or two times your annual salary.
3. Accidental Death and Dismemberment Policies
AD&D insurance can help protect families from financial hardship by paying a benefit upon death or serious injury due to a covered accident. Employees frequently purchase these policies through their company, but they may also be purchased at a bank or through a credit card company.
4. Travel Insurance
An individual who is traveling may purchase insurance to cover their travel by airline, train or some other form of mass transportation or during a vacation.
5. Mortgage Life Insurance
An individual may purchase an insurance policy to pay off their mortgage if they die.
6. Credit Insurance
An individual may purchase an insurance policy to pay off creditors when they die.
What Are the Differences Between Primary Beneficiaries and Secondary Beneficiaries?
When a loved one passes away, it is important to know whether you are a primary beneficiary or a secondary beneficiary and how each type of designation may apply to you.
1. Primary Beneficiary
An individual who purchases an insurance policy names one person or several people as primary beneficiaries. If one person is named, they are entitled to the entire death benefit. If several people are named, the policyholder has predetermined the percentage of cash that everyone will receive as a death benefit.
An insurance company will only pay a death benefit once a designated primary beneficiary files a claim. But if the primary beneficiary does not know of their designation, the insurance company may not alert them to this situation for a considerable length of time. As a result, if a loved one has passed away, and you believe they may have had a life insurance policy which named you as the primary beneficiary, you may need to uncover it on your own.
2. Secondary Beneficiaries
Secondary beneficiaries, also known as contingent beneficiaries, only receive death benefits if all the primary beneficiaries have already died or have declined to accept the benefit. Once again, secondary beneficiaries may be a single individual or a group of people. If the primary beneficiary for some reason refuses to accept the death benefits, then all secondary beneficiaries will need to file claims with a life insurance company to receive the death benefit.
What Are Examples of a Payout Occurring?
When a loved one passes away, family members should determine if they are beneficiaries, then find out what sort of life insurance policy is in effect and inform the insurance company.
- They must file a death claim with the insurance company that is accompanied by an official death certificate. The insurance company will also need to know the number of the life insurance policy.
- Everyone named as a primary beneficiary will need to file a separate life insurance claim form.
- If all the people named as primary beneficiaries in the insurance policy have already died, then everyone named as a secondary beneficiary will need to provide evidence of the policyholder’s death and file a death benefits claim.
So let us assume Janet has a $1 million term life insurance policy as well as a $500,000 accidental death and dismemberment policy. Janet dies in a car crash while the policy is in effect. She has named her husband Peter as her primary beneficiary and her children as her secondary beneficiaries. When you designate beneficiaries in a life insurance policy, it is best to use the legal names of the beneficiaries. Do not use something generic like “my husband” or “my children.”
If Peter was not in the car when his wife was killed and is still alive, he would receive the $1.5 million as death benefits. Janet’s children would not receive any of the money unless their mother and father were both killed in the accident, or their father had already passed away before his wife’s death. In this case, all the children would need to file their own life insurance claim to receive the death benefit as designated by their mother in her policy.
Once the insurance company has been notified, they will investigate to ensure the beneficiaries are the individuals they say they are and then pay the death benefits. Death benefits can be paid out in several ways such as a lump sum or an annuity, with the beneficiaries receiving specified amounts over a period.
Reasons Death Benefits May Not Be Paid After the Death of a Loved One
When you purchase a life insurance policy, you are signing a contract with the insurance company to pay benefits to your beneficiaries when you die. Like any other contract, however, it is important to read the fine print before you decide to purchase the policy. Life insurance policies contain exclusions that list conditions which will not allow your beneficiaries to receive death benefits when you die.
Most insurance policies contain a suicide clause. This clause is an incontestability clause. It provides a window of time in which an insurance company will investigate the circumstances of your death and possibly deny your death benefits to your beneficiaries. In most states, if a policyholder commits suicide within two years of purchasing the policy, the company will most likely not pay the beneficiaries.
The idea behind the suicide clause is to prevent someone from purchasing a large policy and then committing suicide to pay off debt or improve their family’s financial outlook.
2. Failure to Pay the Premium
The insured has allowed their coverage to lapse. Sometimes people stop paying premiums on their policy without informing their beneficiaries
3. Smoking or Any Other Health-Related Issue
If you lied to the insurance company about your current or past smoking habits, or if you failed to mention that you had a heart attack several years ago, this could invoke the incontestability clause again. If the insurance company discovers this during the two-year window created by the incontestability clause, they can cancel your policy.
It is important to be completely honest with the insurance company about smoking habits or medical conditions, such as high blood pressure or if you are taking a blood thinner medication. If you do not, and you die within the two-year window, the insurance company can use this as a reason to deny paying death benefits your beneficiaries, even if your death had nothing to do with high blood pressure or smoking.
4. Dangerous Activities
If you like to swim with sharks or climb mountains during vacations, you need to tell the insurance company. If you do not, and something happens when you’re swimming with the sharks or rock climbing, and the insurance company discovers you have been doing this regularly, they could deny your beneficiaries a payout.
Be honest with the insurance company about risky activities when asked. You may need to pay a bit more, but it will ensure your beneficiaries will receive a payout when you die.
5. Illegal Activities
If you die while you are committing an illegal act, the insurance company will most likely refuse to pay death benefits to your beneficiaries. For example, if you are killed breaking into a house, your beneficiaries will not be paid.
Even if you do not know you are doing something illegal, an insurance company might use that as a reason to deny your beneficiaries death benefits. Suppose you are taking a walk, and you accidentally walk on private land. This could easily happen in a suburban or a rural setting. Then you are startled by a loud noise, say someone taking target practice with a gun or the barking of a menacing dog, and you have a heart attack and die. If the insurance company can prove you were indeed trespassing, they will deny your claim and not issue a payout to your beneficiaries.
6. An Act of War
This is to deny claims for any civilian who is killed by an act of war. For instance, adventure travelers who might seek dangerous adventure and visit area of the world where there is armed conflict, and they are killed. If they have an insurance policy, their beneficiaries will not be paid.
7. Living Outside the United States
If you take out an insurance policy while living in the United States and then move out of the country — for example, when you retire, you move to a warmer climate like Costa Rica or to Canada for the skiing — there may be a clause in the insurance policy that will deny the payment of death benefits.
When you are purchasing an insurance policy, this is one question to ask your agent, especially if you are considering living outside the United States at some time in the future.
One thing you can count on is the insurance company is going to investigate why you died. That is true even if your death is the result of totally normal circumstances that fall within the limits of your policy. Therefore it is critical to be upfront and honest with the insurance company when you are purchasing a policy. If the insurance company discovers you lied to them about your smoking, or you have been traveling to dangerous spots in the world before you purchased your policy, they may use that as a reason to deny your claim when you die, even if those activities had nothing to do with your death.
Is Contacting a Lawyer My Only Step After Not Receiving a Life Insurance Payout?
Not necessarily. Remember that after a loved one dies, you need to file a death benefits claim along with a copy of the death certificate and the number of the insurance policy to receive relatively quick payment. If you think you are a beneficiary but you are not sure, and you wait for the insurance company to contact you, you may be waiting a long time. If you are not receiving an insurance payout when you think you should, this may have nothing to do with the insurance company.
- If your loved one has never told you that you are beneficiary, but you think you may have been, you need to find the policy to file a claim.
- Call the insurance companies that do business in your area and asked them if the deceased had a life insurance policy with them.
- If you know the password to their computers, there may be information on their hard drive. They may have a downloaded PDF with the information you need.
- If you cannot find it there, search for proof that your loved one was making benefit payments.
Every year billions of dollars in death benefits go unclaimed because beneficiaries are not aware of their status. Talk to your loved ones who may have insurance policies and find out if you are a beneficiary. If this is the case, you will not need to use a lawyer unless you feel the company is denying you the death benefits your loved one want you to have.
What Is a Good Reason to Contact an Attorney If You Have Not Received a Life Insurance Payout?
If your claim is denied, the first thing to do is contact your state’s insurance bureau. They may be able to resolve the issue quickly.
If the insurance company refuses to change its position, however, and you believe you have a legitimate claim, you should contact a lawyer as soon as possible. This is especially true if it is an employment-based insurance policy as some of them only allow 60 days to appeal.
It is also a good idea to contact a lawyer if you are unsure of how to proceed or if you are confused about your status as a beneficiary and what documentation you might need. A lawyer can help you find the right papers and help you make a valid claim.
Get the Help You Deserve
If you believe you are entitled to life insurance payouts after a loved one’s death and find you are struggling to get the life insurance company to pay, contact Katherman Briggs & Greenberg for a consultation. If you are owed payouts from life insurance companies, our team can investigate the cause and can find out whether you have a claim against the insurer.
KBG Injury Law has been working with central Pennsylvania families, individuals and businesses for more than 30 years and we can help you review all your options. If your insurer is acting in bad faith, our insurance attorneys can investigate and file an appeal and complaint. If there is a problem with the policy, our personal injury attorneys can evaluate the case to determine whether you have a civil claim to help you recover compensation for your loss. Our goal in each case is to support you during this difficult time.
You can contact us for a free consultation. You can call us at 1-800-509-1011 or visit our contact us page where you can leave us your contact details and some information on your problem and a member of our team will get back to you soon as possible.