Key Life Insurance Death Benefit Issues To Know About
When someone who is insured under a life insurance policy dies
, several issues associated with the life insurance death benefit come into play. Here's an overview of these issues.
- How does the beneficiary make a claim for the death benefit?
When an insured person dies, the beneficiary must file a claim to collect the death benefit. The beneficiary should ask the agent or company for a claim form. You'll have to supply:
* The name of the insured
* A policy number, and
* A certified copy of the death certificate The insurance company has 60 days to pay the claim or notify the beneficiary of any problem with it.
- How will the death benefit be paid to the beneficiary?
The beneficiary may have a choice among several ways to receive a death benefit. These are called settlement options. Four possible options are:
* A lump sum payment where the insurance company sends a check for the full amount of the face value
* An installment payment over time that includes interest on the amount not paid out,
* A checking account set up by the insurance company in the beneficiary's name; the beneficiary receives a check book and can withdraw money as desired, and
* The life insurance company could hold the benefit and simply payout interest on it over time.
-Can the life insurance company refuse to pay the policy benefit?
Insurance companies can refuse to pay death benefits only under certain limited circumstances if you die within the first two years of a policy. Possible reasons may include:
* The insured who is now dead committed fraud when applying for the policy,
* The insured did not disclose a material fact on his life insurance application, and
* The insured committed suicide.
Of course if a beneficiary intentionally killed the insured person, the company can refuse to pay the death benefit no matter how long the policy has been in effect. This is true even if a court has not convicted the beneficiary of the murder.
- What if there are conflicting claims about the beneficiaries?
If there are conflicting claims - such as two people claiming to be the beneficiary - the insurance company may turn the money over to a court. The court will hold the money until the court decides who deserves it.
- Will The Death Benefit Be Taxed?
The face amount of the death benefit is not subject to income tax. But if you opt for a settlement that includes further interest earnings on top of the face value, those earnings are subject to income tax.