
Sign up & start saving!
Get our weekly newsletter for the latest in money news, credit card offers + more ways to save
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Updated . What changed?
Since life insurance policies are paid out upon a policyholder’s death, they can be an awkward subject to navigate. But as the beneficiary, it’s important to know where you stand so you receive the funds that were left to you by your loved one.
As the beneficiary, you can choose how you want to receive the death benefit. Depending on the insurer’s flexibility, you may be given the following options:
The best payment option for you comes down to your situation. If you have debts and expenses that need to be covered, a lump-sum payment might make the most sense. But if you’re financially comfortable and don’t want to make any decisions about how you’ll use the money, you might want to elect for installments or annuities.
Yes. Policyholders can name more than one person to receive the proceeds of their life insurance policy. They can also allocate how much money will go to each. For example, many parents will divide the policy equally among their children.
There are three types of beneficiaries:
Not all policyholders name primary, secondary and final beneficiaries. Some will simply name a sole beneficiary and that person will receive the entire death benefit.
If you’re a policyholder, it’s a good idea to talk over the beneficiary designation with your loved ones to prevent any surprises after your death.
Your contingent beneficiary is next in line to receive your death benefit, otherwise the policy will be paid to the owner’s estate. Policyholders can update their beneficiaries at any time by filling out a form and submitting it to their life insurance company.
You can divide the death benefit ‘per capita,’ i.e. per person. So if one primary beneficiary dies, the proceeds are divided equally among all the survivors of that beneficiary and your other primary beneficiaries. Or, you can choose to divide it ‘per stirpes’ — i.e. by branch of the family — instead. This means that if you outlive one of your primary beneficiaries, their portion of the money will go to their children or grandchildren, and the rest to the other listed primary beneficiaries.
Usually, no — life insurance proceeds are not considered taxable income. This means your beneficiaries will receive the full payout.
However, if your beneficiaries choose to receive the death benefit in installments, they may have to pay income tax on any interest earned on that account.
Let’s say your $100,000 policy earns $10,000 in interest between the time of your death and the payout to your beneficiaries. They’ll most likely owe taxes on that $10,000.
If you believe you’re owed a payout, you’ll need to take action since the insurance company won’t do it on your behalf. Your steps to follow:
There’s over a billion dollars in unclaimed life insurance floating around the US. If you think you might be owed money, start by searching any records the individual may have kept. If you come up empty, check with your state insurance department or use the NAIC’s life insurance policy locator service.
This depends on your state’s laws. Typically, insurers have to pay out beneficiaries 30 to 60 days after the claim is filed. If it takes longer, it’ll have to pay accrued interest on the proceeds.
Yes. Insurers base their claims decisions on solid evidence, so you’ll need to prove them wrong. To contest a claim, collect any evidence in your favor and present it to the life insurance company. If the claim is still denied, you can pursue legal action.
There are a few reasons life insurance won’t pay out. As a beneficiary, you may run into delays if the policyholder:
Reach beyond our top five to find the best fit for your goals and budget.
In most cases, collecting a life insurance policy is straightforward. As a beneficiary, you’ll need to contact the insurance company to file a claim. If everything checks out, you should receive a payout in 30 to 60 days. But if the insurer needs to conduct an investigation, you may not get paid for months or years — or at all.
If you want to take out a policy yourself, be sure to compare life insurance companies.
Here’s where to get financial help for yourself and your business if you’ve been affected by the storm in February 2021.
Learn cost-sharing terms to find out how much you’ll really pay for healthcare.
This fintech just branched out into low-cost life insurance — but its lineup is limited.
Get an incentive to meet your existing health and fitness goals with a discounted premium.
Find unusually low face values for a whole life policy, ideal for supplemental insurance.
Learn your policy options based on the type of transplant and your health status now.
A health savings account (HSA) can help you get prepared for your retirement. Learn more.
Get pet insurance that reimburses 100% of your vet bills or a separate wellness plan.
Use your death benefits to help pay for medical expenses while you’re still alive.
Transform your home without leaving insurance gaps while your home’s under construction.