What Happens When Someone Passes Away?
When someone with life insurance passes away, their family or beneficiaries may have many questions about what happens next. Filing a life insurance claim can feel overwhelming during an already difficult time, but understanding the basic process can make things easier.
The process generally involves notifying the insurance company, providing the required documentation, reviewing the claim, and receiving the policy's death benefit if the claim is approved.
Knowing what to expect can help beneficiaries understand their rights, responsibilities, and the steps involved in receiving life insurance proceeds.
Step 1: Notify the Insurance Company
After someone passes away, one of the first steps is to contact the insurance company that issued the life insurance policy.
The beneficiary, family member, executor, or another authorized person may initiate the claim, depending on the circumstances and insurer's procedures.
If you're unsure which insurance company issued the policy, look for documents such as:
Life insurance policy documents
Insurance statements
Bank or credit card records showing premium payments
Employer benefit records
Emails or correspondence from an insurance company
Financial planning documents
If the policy was provided through an employer, the employer's human resources department may also be able to help identify the coverage.
Step 2: Submit a Death Claim
The beneficiary generally needs to submit a formal claim to the insurance company.
The insurer will provide instructions and forms explaining what information is required.
A claim may typically require:
The policy number
The insured person's name
The beneficiary's information
A certified death certificate
Claim forms
Additional documentation depending on the circumstances
The exact requirements vary by insurance company and policy.
Step 3: The Insurance Company Reviews the Claim
After receiving the claim and required documents, the insurance company reviews the information to determine whether the claim qualifies for payment under the policy.
For straightforward claims, this process may be relatively simple.
However, the insurer may request additional information if questions arise regarding the policy, the insured person's medical history, the circumstances of death, or other policy provisions.
This doesn't necessarily mean the claim will be denied. It may simply mean the insurance company needs additional documentation before making a determination.
What Is the Death Benefit?
The death benefit is the amount of money the life insurance policy provides to the beneficiaries when the insured person dies, subject to the policy's terms.
For example, if someone has a $500,000 life insurance policy and dies while the policy is in force, the beneficiaries may generally receive the policy's applicable $500,000 death benefit.
The actual amount paid can vary depending on factors such as outstanding policy loans, withdrawals, or other provisions.
The policy documents should identify the applicable death benefit and explain how it is calculated.
Who Receives the Money?
The life insurance proceeds are generally paid to the people or entities listed as beneficiaries on the policy.
Beneficiaries may include:
A spouse
Children
Other family members
A trust
A business
Another person or eligible entity
The beneficiary designation on the policy is extremely important.
For example, if someone gets married but never updates an old beneficiary designation, the policy may still pay according to the designation currently on file, subject to applicable law and policy terms.
This is why reviewing beneficiaries after major life events can be important.
How Are Life Insurance Benefits Paid?
Once a claim is approved, beneficiaries may have different options for receiving the proceeds depending on the insurance company and policy.
Common options can include receiving a lump-sum payment or selecting certain settlement options that may provide payments over time.
A lump-sum payment gives the beneficiary access to the entire available death benefit at once.
This can provide flexibility for paying major expenses such as a mortgage, debts, education, or other financial needs.
Some beneficiaries may prefer a payment arrangement that provides income over time. The available options depend on the policy and insurance company.
Are Life Insurance Benefits Taxable?
Life insurance death benefits are generally not subject to federal income tax when paid to beneficiaries, although there are exceptions and other potential tax considerations.
For example, interest that accumulates on life insurance proceeds may be taxable even when the underlying death benefit is generally not.
There can also be estate tax considerations for certain situations, particularly involving large estates or specific ownership arrangements.
Because tax rules can be complicated, beneficiaries with substantial life insurance proceeds may want to consult a qualified tax professional before making major financial decisions.
What If the Policy Has a Loan?
Some permanent life insurance policies allow the policy owner to borrow against the policy's cash value.
If there is an outstanding policy loan when the insured person dies, the amount owed may be deducted from the death benefit before the remaining proceeds are paid to the beneficiaries.
For example, a policy with a $500,000 death benefit and an outstanding $50,000 loan may result in a lower amount being paid to beneficiaries, depending on the policy's terms and any applicable interest.
This is one reason policyholders should understand how accessing cash value can affect their coverage.
What If the Policy Has Lapsed?
A life insurance policy generally needs to be in force when the insured person dies for the death benefit to be payable.
If premiums weren't paid and the policy had already lapsed, the claim may not be payable.
Some policies have grace periods or reinstatement provisions that can affect this outcome.
This is why keeping premiums current and understanding the policy's terms is important.
What If Someone Dies Shortly After Buying Life Insurance?
Life insurance policies can contain provisions that apply during the early period after a policy is issued.
One important provision is the contestability period, which is commonly the first two years of a policy. During this period, the insurer may have additional rights to review information provided in the application when evaluating a claim.
Policies may also contain specific exclusions or provisions related to certain causes of death.
These provisions vary by policy and applicable law, so beneficiaries should review the policy and communicate directly with the insurer if questions arise.
What If the Beneficiary Can't Find the Policy?
Sometimes families know that someone had life insurance but cannot locate the policy documents.
Start by checking personal financial records, bank statements, emails, employer records, and documents kept by financial professionals.
If you believe the policy may have been provided through an employer, contact the employer or former employer's benefits department.
There may also be state resources available to help consumers search for unclaimed life insurance benefits.
How Long Does It Take to Receive the Money?
There is no single timeline for every life insurance claim.
Straightforward claims with complete documentation may be processed relatively quickly, while claims requiring additional investigation can take longer.
Providing complete and accurate documentation can help avoid unnecessary delays.
If you're unsure about the status of a claim, contact the insurance company's claims department and ask whether additional information is needed.
What Should Beneficiaries Do With the Money?
Receiving a life insurance benefit can provide important financial security, but it can also involve significant financial decisions during a difficult period.
Beneficiaries may use the proceeds for expenses such as:
Funeral and burial costs
Mortgage payments
Outstanding debts
Everyday living expenses
Childcare
Education
Emergency savings
Retirement planning
Long-term financial goals
There is generally no requirement that beneficiaries spend the money immediately.
Taking time to understand the family's financial situation before making major decisions can be valuable.
The Bottom Line
When someone with life insurance passes away, the beneficiaries generally need to notify the insurance company and submit a claim with the required documentation. The insurer then reviews the claim and, if approved, pays the applicable death benefit according to the policy.
The process can vary depending on the type of policy, beneficiary designations, cause of death, policy status, and other circumstances.
For families, having an up-to-date life insurance policy—and making sure beneficiaries know that the policy exists—can make an already difficult time a little easier.
Life insurance is ultimately about making sure financial protection is available when your loved ones need it most.