What happens if the insured person dies?

Larger claims (often those in excess of $10,000 to $25,000  depending on the life insurance company) are often paid in a lump sum by means  of a “checkbook instead of a check.” The insurance company deposits the  proceeds, and any interest earned from the date of the insured’s death, into a  special account generically known as a Beneficiary Access or Retained Assets Account.

The insurance company immediately sends the beneficiary a  book of checks or drafts. As the beneficiary can immediately write checks to  pay any bills or to obtain cash there is fast and convenient access to the  funds, without waiting for a large check to clear. These accounts are free and  also pay interest, often at a rate significantly higher than is available for  similar accounts from most banks.

A beneficiary is under no  obligation to maintain the retained assets account and can simply write a check  for the full amount and close the account, although most beneficiaries do  maintain at least some of the money in the retained assets accounts for at  least 6 months to 2 years. The interest rates are often very favorable, the  proceeds are backed by the full financial strength of the insurance company  (and in many cases further backstopped by the applicable state life insurance  guarantee fund), the account is free, and funds are readily accessible. The  retained asset accounts also help people mentally separate their life insurance  proceeds from their   other everyday  money.  However, just as it is often  unwise to hold all one’s assets in any one bank or brokerage firm, holding all  one’s assets at one insurance company is not necessarily wise, so consider some  diversification.

Once proof of the death is submitted to the insurance company, and it is  clear that the necessary premiums to keep the policy “in force” were  paid to the date of death, the life insurance company should promptly pay the  benefits, assuming that everything is in order and the policy has been in  effect for at least two years. (Once the policy is at least two years old it is  beyond the “incontestable period” and must be paid, except in  extraordinary circumstances.)

Even if premiums on the policy were not currently being paid, the policy may  have been in a “paid up” status, and thus remained in force, or the  company may have failed to send the necessary notices of cancellation, or be  able to prove it had sent such notices, in which case it may be possible to  recover on the policy.

Typically the beneficiary — the person who is entitled to receive the benefits  — provides the insurance company with the “proof” of the death  required by the policy. A certified copy of the death certificate (typically with  a “raised seal” from the County Clerk’s Office) and the life  insurer’s claim form are normally sufficient, but it is necessary to file them;  just because the company may have been able to read about the death in the  papers, or also was the health insurer, is not sufficient.

Processing a policy death claim should take only one to four weeks from the  time the insurer’s claims office has all the needed paperwork in the standard  case, if it does not, you may have a problem case (see below) or an insurer acting in bad faith.

Case Studies: Claims Process and Payouts for Deceased Insured Individuals

Case Study 1: Lump Sum Payment

In this case, the insurance company pays out the life insurance benefits in a lump sum to the beneficiary. The beneficiary receives a book of checks or drafts, allowing them convenient access to the funds for various purposes, such as paying bills or obtaining cash. Retained assets accounts, offering favorable interest rates and backed by the financial strength of the insurance company, provide flexibility and mental separation of the life insurance proceeds from other everyday money.

Case Study 2: Recovery on a Lapsed Policy

Sometimes an insured person may have missed premium payments, leading to a lapsed policy. However, if the policy was in a “paid up” status or the insurance company failed to send necessary cancellation notices, it may still be possible to recover on the policy. The beneficiary needs to provide proof of the insured’s death, typically through a certified copy of the death certificate and the insurer’s claim form.

Case Study 3: Expedited Claims Process

In this scenario, the claims process is smooth and efficient. Once the beneficiary submits the required proof of death and necessary paperwork, such as a certified death certificate and the insurer’s claim form, the insurance company promptly pays out the benefits. Generally, if a policy has been in force for at least two years, it is beyond the contestable period and must be paid, except in extraordinary circumstances. The processing time for a standard case can range from one to four weeks.