Guide to Life Insurance Death Benefits and 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 income.

A death benefit refers to the amount paid out to the designated beneficiary of a life insurance policy, annuity or pension following the insured's death. Beneficiaries must submit proof of the deceased's passing and documentation concerning their coverage to the insurance company to claim the death benefit.

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:

There are some steps that need to be taken after a loved one passes away.

Understanding the timeline and knowing what steps to take before and when claiming a life insurance death benefit can make this challenging time more manageable.

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.

1–3 days

Arrange funeral services. The funeral director can file for death certificates on your behalf. After filing, the certificates may take five days to arrive.

7–10 days

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. Your provider can verify who you are and provide a certified death certificate.

4–6 weeks

If your loved one passed away naturally (such as from illness), you may receive the life insurance death benefit payout one to three 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 the police.

8–10 weeks

In many cases, life insurance death benefits are available within 30 days of filing. If there were complicated circumstances involved, payout might take around 60 days after filing.

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. Life insurance death benefit 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.

Military families have some different life insurance 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. In most cases, expect to receive SGLI funds four to six 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. 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.

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 deserve time to step away from the to-do list and reach out for any help you need to cope.

It's 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:

• Shock/Denial
• Anger
• Bargaining
• Depression
• Acceptance

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.

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.

Navigating life insurance death benefits and final expenses can be overwhelming, especially during a challenging time. Here are some frequently asked questions to help clarify important concepts.

Dewey Dematatis is a financial advisor with First Financial Group. He has over 20 years of experience advising people on life insurance policies.

Below are some resources that could help you learn more about life insurance death benefits, and final expenses.

• 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.
• 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.