What should life insurance beneficiaries know?

What does it mean to be a life insurance beneficiary?

A life insurance beneficiary is generally a person (although it can sometimes be a trust, estate or charity) who has been selected by the owner of a life insurance policy to receive the money from that policy (also known as the "death benefit") after the policy owner has passed away.

There are basically two types of beneficiaries: primary and secondary (or sometimes called contingent beneficiaries). The primary beneficiary is the policy holder's "first choice" to receive the money. A secondary beneficiary is often named just in case the primary beneficiary has also passed away.

Who can be a life insurance beneficiary?

In most cases, a life insurance beneficiary is a family member or legal guardian of the insured. You may be the only beneficiary of the policy or there may be several beneficiaries who each receive a portion of the death benefit. You can be the executor of a person's will and still be a beneficiary.

Life insurance beneficiary requirements

Being a beneficiary doesn't require you to do anything unless and until it's time to make a claim. However, if you know you are named as a life insurance beneficiary in a loved one's policy, you might want to ask that person to tell you where you can find their policy if and when you need it. Being able to get your hands on the actual policy can help make the claim process easier and less stressful.

How to make a life insurance claim

Step 1: Gather documents and information

Before you can make a claim, you'll need to gather some information about the policy. That includes the name and contact information of the insurance company, the insured's name, date of birth and date of death. Depending on the life insurance company, the policy number isn't always necessary, but handy to have. As we discussed above, the best way to get most of that information is to have the actual life insurance policy. But even some of the information - the name of the company and details about the insured - can be enough to begin the process.

The other thing you may need is a copy of the death certificate, which serves as proof the policy holder has passed away.

Step 2: Alert the insurance company

If a loved one passes away, don't wait for the insurance company to contact you. Although some companies try to find out if any of their policy holders have died (and some states require them to try), there is no automatic process that alerts the company of a policy holder's death. Death benefits sometimes go unclaimed for years because the insurance company doesn't know the insured person has died. If you have the policy, use the contact information it provides. You can also go online to the company's website for information about making claims. Nowadays, many companies give you the option of calling with a claim or making the claim online.

Step 3: Provide follow-up information

When you make a claim, the insurance company will generally have you fill out a claim form where you may be asked, among other things, whether you would like the payout in a single lump sum or a series of smaller payments known as an "annuity." If you don't yet have "proof of death," you might be asked to provide it as part of the follow-up. The company can tell you what forms of proof it will accept.

How long does it take to get a life insurance payout?

How quickly you receive the money your loved one wanted you to have depends on the insurance company, the state, and the circumstances. In many states, the insurance company has 30 days to review your claim. At that point, the company can accept or deny the claim or ask you to provide additional information. If your claim is accepted, payment generally occurs right away. However, claim payment may be delayed in the case of a homicide or if there is suspicion of fraud. If the insured person dies during the first two years they owned the policy, there can sometimes be delays from six months to a year before the beneficiary is paid.

Checklist for life insurance beneficiaries 

• Ask the person who selected you to let you know how and where to get the policy in the event you need to make a claim
• Make sure that, at the very least, you know the name of the insurance company and the policyholder's date of birth and date of death
• If you need to make a life insurance claim, contact the insurance company as soon as possible - so you will have a better chance of getting the money in time to help cover final arrangements or other urgent needs.

If you're the person who owns the life insurance policy:

• Review this policyholder checklist to ensure your death benefit gets paid out correctly and in a timely fashion.