How do life insurance pay outs work?

Last updated on November 25th, 2021 at 02:57 pm by Bill Tsouvalas

To get the most out of your life insurance policy is to understand how it works. There are various conditions, time frames, and life insurance lingo that comes with taking out a policy that might be initially confusing to grapple with, but we offer a basic guide that can assist in smoothening out the process for you. If you are wondering how life insurance pay outs work, this basic guide will help you wrap your mind around it.

How do life insurance pay outs work?

Pay outs, which are also known as benefits, are typically paid out when the insured has passed on and the beneficiary files a death claim with the insurance company. You will be requested to submit documents such as a death certificate to verify that the insured has passed on which will release the benefit payments. Insurers typically use 10 business days to review the claim. It is during this period that the insurer will asses the claim and can either pay it, deny it or ask you to submit additional information.

How long will it take before we receive the pay out?

The time frame in which you will receive the pay out will vary from insurer to insurer. Most insurers, after reviewing your claim, will take a period 4 – 12 months from the date of the claim to start paying out the benefit. However, most insurers will pay out the claim as soon as possible once they have proof that the insured has passed on. They also do this to avoid charges that come with releasing the payment late, which will ensure that you do not have to suffer the financial burden of losing your loved one.

Pay out can be delayed

There are situations where the pay out will not be paid out immediately. Life insurance policies comes with terms that stipulate what can delay your claim from being processed. Factors such as the insured passing away within 2 years after the policy has been issued can cause the pay out to be delayed by 12 months in exceptional cases . If the insured’s death has been listed as a homicide, the pay out will be delayed until the charges are dropped. Furthermore, if the insured has committed suicide within two years of taking out the policy it can result in an insurer refusing to pay out the benefit.

Before signing your life insurance policy, it is important that you read the clauses that come with it. The reason for such delays is because insurers want to ensure that fraud has not been committed. If you do not understand the process or a clause you can speak to your insurer who will be able to shed light on what it means. This will save you from any confusion later down the road when you need the pay out.

The process of filing a claim

The claim process is easy to follow and can be smoother if you have the necessary documents that are needed to process the claim such as a death certificate. The beneficiary(ies) needs to contact the insurer immediately following the death of the insured. You will have to provide the insured’s policy number and contact details along with the causes of death. Most insurance companies will have a form that they will request you to fill out in person or on their sites. What usually follows next is:

  • Claims forms will be sent to the policy owner by the insurance company in which the claimant needs to fill out and complete.
  • Returning of the claims forms by the claimant along with supporting documents such as medical reports and death certificate which will allow the claim to be processed.
  • Claim will be assessed by the insurance provider which varies between 5-10 days.
  • Decision is made on the claim on whether it has been accepted, denied, or if further information is still needed.

When it comes to life insurance honesty is the best policy. By being honest during the application process for a life insurance policy will ensure that the pay out process is one that is smooth for your beneficiary(ies).