Expert Advice for Grieving Beneficiaries, Including Military Families
Guide to Life Insurance Death Benefits & Final Expenses
The death of a loved one is one of the most difficult losses you will ever experience. In addition to the emotional weight of grief, you may also face significant financial hurdles, especially if the loved one provided financially for you and your household. Death benefits from a life insurance policy can help replace this crucial income. This guide will help you navigate important financial steps to take after losing a loved one.
The Cost of Final Expenses for Funerals, Burial and Cremation
One of the first financial tasks survivors face after losing a loved one is arranging the funeral. The National Funeral Directors Association (NFDA) reported a national median cost in 2014 of $7,181 for a memorial service and burial, and $8,508 if a burial vault was included. It is possible to have a meaningful, dignified funeral while spending much more (or much less). This cost breakdown, based on information from the NFDA and The Funeral Site, can help you plan the right service for your loved one:
Financial Steps to Take When a Loved One Dies
Have a medical professional verify the death
If your loved one died in a hospital, his or her physician will do this. If the death occurs at home and is expected and a hospice service is involved, call them. If your loved one passed away unexpectedly, your first step is calling 911 to send someone who can officially declare the death. Be aware the emergency workers are required to attempt resuscitation unless there is a do not resuscitate order. Sometimes they are required to transport the body to a hospital for a declaration of death.
Arrange for transportation of the body
If the body is not taken to the hospital, a funeral home can pick up the body directly.
Contact a funeral director
Besides helping you coordinate the memorial service, a funeral director can obtain required permits (such as a burial permit), help you place an obituary in the local newspaper and order copies of the death certificate.
In the Following Weeks
Call the estate lawyer, if the deceased had one
You need to determine if there is a will, who will act as executor of the estate, who the beneficiaries are and whether there are any complications to consider (for example, what to do if one of the beneficiaries has also passed away).
If you're the executor, get proof that you have a right to settle the deceased's affairs
Take the will and a certified copy of the death certificate to the city hall or the courthouse in the city where your loved one died. File a petition for probate. When the court does so and validates the will, you'll be issued letters of administration (also called letters testamentary). You'll need certified copies of this letter to close down your loved one's accounts and settle the estate. (If there's no will, the surviving spouse or "next of kin" can take the death certificate to the court and be named executor.)
Gather your loved one's important financial paperwork
"Make sure you understand all the debt this person has, their property and any assets," says Dewey Dematatis, a financial advisor with First Financial Group. This includes mortgage documents, loans, car titles, deeds, business ownership documents and credit card information. Banks will freeze individual accounts upon death but not joint accounts or those in a trust.
Order multiple certified copies of the death certificate
"I recommend at least 30 of them," says Dematatis. You'll be dealing with many government, financial and corporate institutions in coming weeks, and all of them will require proof of death. (You can order the copies from the city clerk's office or the local vital statistics office.)
Set up an estate bank account
"All the assets have to be distributed properly," Dematatis explains. "It's pretty involved and there's a lot of little steps that are annoying but have to be done to close the estate...There has to be an accounting of every dollar and every asset and every bill, and the income tax." A dedicated bank account makes it easier to keep records straight. This is done by the estate attorney or the executor or administrator of the estate.
Contact the Social Security office, employers, military commanding officers and any others who may offer benefits for a surviving spouse or child.
There may be a lot of options available to surviving family, but only if you claim benefits within an allotted time frame.
Notify government and financial institutions of the person's death
Contact Social Security, insurance companies, and the post office. Banks and credit card providers, creditors, business partners and others also need to be notified. The IRS is notified when the estate files a final tax return. The utility bills should be transferred into your or the executor's name.
Cancel subscriptions and paid memberships
Everyday accounts like gym memberships, movie streaming subscriptions, newspapers and magazines should be canceled.
Appoint someone to check on the house if it's vacant, or ask the local police force to patrol to discourage thieves
Protect assets in the home by having someone check in regularly. Remove valuable assets from the home as soon as possible.
Applying For A Life Insurance Payout: The Survivor's Timeline
Immediately after death
Have a medical professional legally pronounce death. Notify close friends and family. Call the funeral director to transport and store the body.
Arrange funeral services. The funeral director can file for death certificates on your behalf. After filing, the certificates may take 5 days to arrive.
Once you receive the death certificates, file a claim with the life insurance provider. Contact the insurance agent who can help you file the correct documents and move the process along. "It's not the end of the world if you can't find the policy," Dematatis assures survivors. Verify who you are and provide a certified death certificate, and the provider can look it up for you.
If your loved one passed away naturally (such as from illness), you may receive the life insurance payout 1 to 3 weeks after filing, although many states allow insurers 30 days to pay. If the death was a suspected suicide or homicide, processing the claim may take longer while the insurance company investigates or cooperates with police.
In many cases, life insurance funds are available within 30 days of filing. If there were complicated circumstances involved, payout might take around 60 days after filing.
Special Circumstances that May Affect a Payout
Most life insurance policies include a contestability clause, which may come into play in cases of suicide. "If it's a suicide, insurance policies have usually a two-year window [that the policy has had to be in effect] where they won't pay. After that, they will definitely investigate it," Dematatis said. "Let's say you have a life insurance policy and the person commits suicide in the sixth year of the policy. The insurance company wants to make sure the person wasn't diagnosed with something in the first two years of the policy."
In cases where homicide or other foul play is suspected, the insurance provider must cooperate with police or detective investigations to make sure the beneficiary isn't a suspect. Payouts can be delayed while this process takes priority.
Active military service members should read policies carefully and consult a financial advisor to help them find a suitable option.
In some cases, a policyholder may want to withdraw life insurance benefits before death. Depending on the policy, someone who's been diagnosed with a terminal or chronic illness may be able to use life insurance funds to cover their care. They act as the beneficiary in this case. Funds that remain after the policyholder's death can still go to other designated beneficiaries.
Life Insurance and Death Benefits for Military Families
Military families have some different options and resources than civilian families when it comes to funeral planning and funds available for survivors.
Military Funeral Benefits
Military funeral honors are available at no cost to the family for service members who were not discharged dishonorably. Families are legally entitled to have at least two uniformed service members to present and fold a flag and play "Taps," either live or via a recording. Other funeral honors may be offered based on personnel and resource availability.
Military service members, veterans and their spouses and dependent children are eligible for burial in military-specific cemeteries. The VA states that there are 135 national cemeteries, and there are also state cemeteries for veterans. If you choose to bury a service member or veteran in a private cemetery, you may still be entitled to benefits such as a government headstone or grave marker, burial flag and Presidential Memorial Certificate at no cost. Benefits are available regardless of whether you bury your loved one's body or cremated remains. A free headstone is also available.
The VA may provide some financial benefits toward funeral expenses for veterans' non-service-related deaths, subject to certain conditions. If the veteran was hospitalized by the VA at the time of death, the VA offers a $722 burial allowance and $722 for a plot. If the veteran was not hospitalized by the VA but receives a VA pension or disability, the burial allowance is $300.
Financial Benefits for Survivors
Eligible next of kin are entitled to a $100,000 death gratuity upon the death of a service member in active duty or within 120 days of separation due to a service-related injury or illness. Survivors may also be eligible for Dependency and Indemnity Compensation (DIC) for veterans whose service-connected conditions contributed to their death.
The military automatically enrolls service members in the Servicemembers' Group Life Insurance (SGLI) program at the maximum amount of $400,000. If the service member dies on active duty or of a service-related disability, eligible survivors can claim this benefit. The service member has the option to decline or reduce this coverage. Service members who separate from the military may have the option to convert SGLI to a commercial policy within 120 days, apply for a two-year disability extension, or convert to Veterans' Group Life Insurance (VGLI) within one year and 120 days after discharge. To learn more about life insurance policies available for military service members and their families, check out our guide. In most cases, expect to receive SGLI funds 4-6 weeks after the claims office receives all the required documentation. The policyholder designates whether funds are paid as a lump sum or in 36 equal monthly payments.
If a service member commits suicide, SGLI may still provide death benefits, although DIC may not. Traumatic Injury Protection under SGLI explicitly does not cover suicide attempts or self-inflicted injuries. It's important to note that a partnership between the Army and the National Institute of Mental Health observed a rise in soldier suicide deaths between 2004 and 2009, even among soldiers who had not been deployed. If you or a loved one is experiencing suicidal thoughts, please seek professional help immediately.
Coping with Loss
In the midst of dealing with the financial and administrative tasks that come with losing a loved one, it's important to take time to care for yourself. You've suffered a significant loss. You deserve time to step away from the to-do list and reach out for any help you need to cope.
The Stages of Grief
It's okay, and normal, to experience a range of emotions when someone close to you passes away. You may feel numb or disbelieving, sad or angry, or even relieved (especially if your loved one went through a long illness and suffered greatly). There's no "right" way to grieve, and you should take as much time as you need to mourn and process your feelings.
Some people may find it helpful to review the "five stages" of grief. Elisabeth Kübler-Ross used the stages to describe a dying person's emotional journey, but many bereaved people may experience a similar process:
You may experience some of these feelings in a different order, linger in one stage longer than another, or return to a previous stage before moving forward. Grieving is a deeply personal process, and it's okay if your experience is different from someone else's.
Seeking Outside Help
Sometimes, grief can be too intense or prolonged to handle alone. A grief counselor's role is to help you manage the toll that grieving takes on you and develop less stressful ways of dealing with it and honoring your loved one. One online directory of therapists estimates that sessions may range from $65 to $300 or more, depending on your area and the clinic. Your health insurance may cover therapy only if you have a diagnosed condition, such as depression. If you're concerned about how to afford grief counseling, ask the therapist about paying on a sliding scale based on your income.
If you are religious, speaking with a leader at your local house of worship may be a free source of support. If you have thoughts of self-harm or suicide, the National Suicide Prevention Lifeline can connect you with a counselor to talk with you and direct you to mental health resources in your area.
Like grief, moving forward is a personal process. It doesn't mean you've forgotten your loved one or that you care about them any less. There's no right or wrong answer for how long moving forward should take, or how you choose to remember your loved one. Mementos like photos and keepsakes, family altars or rituals like a regular gravesite visit can provide ways to honor your loved one's memory while adapting to a "new normal" without them.
Dewey Dematatis is a financial advisor with First Financial Group. He has over 20 years of experience advising people on life insurance policies.
What are the first financial steps I should take after my loved one passes away?
"The first thing is you make sure you know where all the bills are, any agreements, cosigns for a loan," Dematatis said. "You get a total of everything they owned."
Equally important is determining who will serve as the executor. "Executors can receive fees for [their] work, and it's good to disclose that up front. You might have three siblings, and one is a lawyer and feels entitled to charge [his or her] hourly rate, and that would be upsetting to the other siblings." Often families can negotiate an agreement not to take any fees (or for the fees to be very minimal).
Other tasks include ordering death certificates, notifying financial institutions, and setting up an estate bank account. Dematatis strongly recommends "What Do You Do Now?", a publication by LIMRA, as a guide to life insurance for survivors and beneficiaries.
What paperwork do I need to handle claiming a life insurance payout?
You'll need a death certificate, a life insurance claim form and the deceased's policy information. "If there are multiple beneficiaries, they'll have to participate, too. If one of them passed away, you'll need a death certificate there, too, and [to know] whether there was a trust."
How will I receive the funds?
"You can take it as cash. Death benefits are income tax free." Sometimes, a life insurance payout may come with special conditions. "If the insurance policy is owned by a trust, the trust can distribute assets based on what the original trustee wants, or [what] the deceased wanted. Let's say you've got three kids and one is a drug addict, and you don't want to give money [directly to that child]." A policyholder can designate one beneficiary's share to be used only for education or medical care, for example. "It's called a restricted benefit, and that way you can only give money for their needs, or if they [control] the addiction for 5 or 10 years."
Restricted benefits can also apply to a timeline for life insurance payments. "You don't want to give an 18-year-old a million dollars [as a lump sum]. You can designate it in increments so they're still motivated to be productive...There are a hundred ways to do it, and it just depends on the creativity of the individual." For beneficiaries, Dematatis recommends taking things slow. "One of the big mistakes people make is they do a move [of funds] in the first 12 months. If you have immediate income needs, do that...[Otherwise], spend some time to calm down. Deal with the loss before you deal with big assets."
How are death benefits different for military families?
"Military families have different options. There are survivor options based on how much service they've done. Service members can buy life insurance, but there's a limit to how much they can buy. If they're liable to go into combat, outside life insurance [companies] might write policies on the family, but not on the service member." Dematatis recommends that service members consult a financial advisor to help them navigate their options.
- The Federal Trade Commission's Funeral Rule lists your rights when planning funeral arrangements.
- The IRS explains when you do and don't have to pay taxes on life insurance funds.
- The U.S. Office of Personnel Management explains recent changes to FEGLI, an insurance program for federal employees.
- Military service members and veterans should investigate insurance options, including SGLI, VGLI and FSGLI.
- The U.S. Department of Veterans Affairs also offers guidance on survivors' benefits, including bereavement counseling in qualifying cases.
- The National Association of Insurance and Financial Advisors (NAIFA) can be a resource to find a financial advisor.
- The National Association of Personal Financial Advisors (NAPFA) may also help connect you with an advisor.
- The American Association of Retired Persons (AARP) provides a checklist of tasks and documents required when a loved one passes away.
- Mental Health America (MHA) offers guidance on what to expect from the grieving process.
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