The life insurance payout timeline 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: July 27, 2024
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Table of Contents
- What Is Life Insurance Payout?
- Factors Affecting Life Insurance Payout Timeline
- Life Insurance Payout Options
- Length of Time to Claim a Life Insurance Policy
- Common Reasons for Life Insurance Payout Delays
- How to File a Life Insurance Claim
- Tips to Avoid Life Insurance Payout Delays
- FAQ: Getting a Life Insurance Payout
Key Takeaways
Insurers generally take two weeks to two months to pay out life insurance claims.
Some factors that can delay life insurance claims processing include incomplete or inaccurate paperwork, cause of death and contestability clause.
While there’s usually no deadline to file a claim, filing a claim sooner means receiving the benefit in a shorter life insurance payout time.
What Is 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: This policy covers 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.
Factors Affecting the Timing of Death Benefit Payouts
Some of the factors that affect the timing of a life insurance death benefit payout are in your control, like submitting accurate paperwork on time. Others are outside your control, like state laws and regulations and the policyholder’s cause of death. These influence how swiftly or slowly the insurance company releases the death benefit.
Time Taken Before Filing a Claim
Depending on the policy, there may be a defined period for processing life insurance claims or you may be able to file a claim at any time after the policyholder’s passing. Generally, the sooner you file a claim, the sooner you will receive a payout from the insurer.
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 do so, the faster the payout.
Beneficiary Information Accuracy
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. An insurer may normally delay the payment due to inaccurate or outdated beneficiary information.
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 be a reason life insurance won't pay out.
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
State laws can influence life insurance claims processing. 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.
Life Insurance Payout Options
Beneficiaries can choose how they receive the life insurance payment. Each life insurance payout option comes with its own set of considerations, from immediate financial needs to long-term 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.
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.
Researching the available life insurance payout options can maximize the financial benefit for your situation.
Length of Time to Claim a Life Insurance Policy
Generally, there is no set deadline for filing a claim, but it's advisable to do so as soon as possible to initiate the payout process. Some policies may have clauses that specify a life insurance claim time limit, 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 time frame, 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. But as long as the insured dies while the policy is active, the beneficiary will 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 discrepancies are found.
Unclaimed life insurance benefits are turned over to the state's unclaimed property division if beneficiaries do not come forward. The time before this happens can vary by state but is usually around three to five years.
Common Reasons for Life Insurance Payout Delays
Various factors can slow down life insurance claims processing. Understanding the common pitfalls can equip you to take proactive steps, ensuring a smoother, more efficient life insurance claims process.
1
Submitting Incorrect Information or Documentation
Filling out claim forms vaguely or incorrectly or submitting the wrong documents (such as a copy of the death certificate instead of a certified death certificate) can also cause a delay in the life insurance payout timeline. To ensure that life insurance claims processing goes smoothly, you should follow all directions from the insurance company.
2
Missing Paperwork
A common cause of death benefit payment delay is missing paperwork. 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.
3
Death During the Contestability Period
If the policyholder dies during the contestability period, this could delay payout for a few months to a year. The insurance company will need to investigate fraud or potential misrepresentation on the application to ensure the beneficiary is eligible to receive the benefit.
MONEYGEEK EXPERT TIP
You should contact the life insurance company as soon as possible to avoid delays. The claims department can provide guidance about meeting requirements, submitting the correct paperwork and ensuring everything is in order so that the claims process goes as smoothly as possible.
How to File a Life Insurance Claim
Understanding how to file a life insurance claim and preparing in advance can make the life insurance claims 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 details of the insurance company.
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 the reasons life insurance 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 that usually, you won't have to include the payout in your gross income or report it on your tax return.
However, there are 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
Below are some actionable tips to help you expedite the life insurance payout process and avoid delays.
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 like 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 cause delays or even result in the payout going to the wrong individual.
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.
Use online tools like the National Association of Insurance Commissioners' Life Insurance Policy Locator Service, which can help identify policies by connecting with multiple insurance companies. Additionally, review their mail for policy statements or premium invoices.
FAQ: 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?
After filing a claim, receiving the death benefit payout generally takes between two weeks and two months.
Why does life insurance take so long to pay out after a claim?
A few factors may delay the claims process, including incomplete or incorrect information, cause of death and whether or not the policyholder died during a contestable period.
How long does a beneficiary have to claim a life insurance policy?
For most life insurance policies, there’s no time limit when it comes to 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 subject to income tax. However, interest earned on installment payments and certain other scenarios can be taxable.
What documents are needed to file a life insurance claim?
Required documents usually include a death certificate and the original insurance policy. Depending on the insurance company, there may be additional forms you need to submit.
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?
If you die a month after purchasing life insurance, the company may investigate to ensure no misinformation or fraud occurred. However, if the policy is valid, beneficiaries should receive the average life insurance payout after death.
How does life insurance pay out?
Life insurance pays out through different options: 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 do you collect life insurance as a beneficiary?
As a beneficiary, you can collect life insurance by notifying the insurer of the death, submitting required documents and choosing a life insurance payout option. The process involves life insurance claims processing and adhering to policy terms.
How long does it take life insurance to pay funeral homes?
The time it takes for life insurance to pay funeral homes can vary. If the policy includes an assignment clause, payment can be expedited within a few weeks to cover funeral costs directly.
Experts Insight on Life Insurance Payout Duration
- What factors can significantly affect the timing of a death benefit payout?
- Could you provide guidance on how to handle the tax implications of a life insurance payout?
- Are there any best practices beneficiaries should keep in mind?
Kyle Newell, CFP®, CRPC®Owner and Financial Planner at Newell Wealth Management, LLC
Chuck CzajkaCEO of Macro Money Concepts
Alonso Rodriguez Segarra, CFP®️CEO/Hourly Financial Planner at Advise Financial®️
Aaron Rubin, JDPartner at WRP Wealth Management
Brenna Baucum, CFP®, CTS™Founder and Financial Planner at Collective Wealth Planning
Sandra D. Adams, CFPLead Financial Planner/Partner at The Center for Financial Planning, Inc.
Stacey S. Hyde, CFAPresident at Envision Financial Planning
Robert BainDirector of Insurance at Edelman Financial Engines
Sarah KangFinancial Planner at UAK Diversified Wealth Management
Nick Cantrell, CFPFounder, Wealth Advisor at Green Future Wealth Management
About Margaret Wack
Margaret Wack, a contributing journalist at MoneyGeek, is an award-winning poet with over six years of editorial experience in digital publications. She writes about insurance, saving, investing and banking, with bylines on Money Under 30 and Bankrate.
Wack earned her Bachelor of Arts in Classics, Comparative Literature and Poetry from Smith College and her Master of Arts from St. John's College.