Are you curious about what happens to your life insurance policy after you pass away? This article will unravel the mysteries surrounding the afterlife of life insurance.
You’ve diligently protected your loved ones by securing a life insurance policy. But once you’re gone, where does that policy go? What happens to the money you’ve invested? And how can your loved ones claim the benefits?
In this guide, we delve into the processes that occur after the insured individual’s death. From filing a claim to understanding different payout options, we cover it all. We’ll walk you through the steps your loved ones need to take to ensure a smooth claim process, including what documentation is required and how long it generally takes to receive the payout.
Understanding what happens to your life insurance policy after you die is essential for both you and your loved ones. So, let’s demystify the afterlife of life insurance and equip you with the knowledge you need to make informed decisions about your financial future.
Understanding life insurance policies
The importance of policy ownership and beneficiaries in life insurance
What happens to a life insurance policy after death
Contacting the life insurance company
The claims process for life insurance policies
Common misconceptions about life insurance after death
Life insurance policy options for policy owners
Planning for the afterlife of your life insurance policy
Conclusion: Ensuring your loved ones are protected
Getting Advice
1. Understanding life insurance policies
Life insurance is a contract between an individual and an insurance company, where the individual pays regular premiums in exchange for a death benefit that is paid out to the policy owner on death. If your policy is in your name, then the proceeds are distributed as per your will to your designated beneficiaries upon your death. Life insurance policies provide financial safety nets by ensuring that loved ones are taken care of financially after the policyholder’s passing. Term life insurance is the most common type of life insurance in New Zealand which provides coverage for your entire life or for as long as you require it.
It’s important to understand the specifics of your life insurance policy, including the coverage amount, premium payments, and any additional riders or benefits. Familiarize yourself with the terms and conditions outlined in your policy, as this will help you and your beneficiaries navigate the claims process more smoothly. If you are unsure, please reach out to us and one of our advisors will be happy to go through your current policy with you.
2. The importance of policy ownership and beneficiaries in life insurance
There are two main parties involved in a life insurance policy, besides the insurance company (insurer). The first is the life insured, who is the person whose death triggers the payout. The second is the policy owner. The policy owner is usually your spouse or partner, but you can nominate someone else depending on the insurer. If you’re the sole life insured and want someone specific to receive the money when you die, you need a current will that names one or more beneficiaries.
Policy owners play a crucial role in the afterlife of life insurance policies, as they are responsible for filing a claim and providing the necessary documentation to the insurance company. If the proceeds of your life insurance policy are distributed through a will, this will be undertaken by the executor of your will.
It’s important to regularly review and update your policy and your will to ensure that it reflects your current wishes. Life events such as marriage, divorce, the birth of a child, or the passing of a loved one may necessitate changes to your policy and will. By keeping your policy and will up to date, you can ensure that your loved ones are protected and that the claims process is expedited.
3. What happens to a life insurance policy after death
When the insured individual passes away, the life insurance policy enters the claims process. The policy owners must notify the insurance company of the policyholder’s death and provide the necessary documentation to initiate the claim.
A death certificate will be required by the insurance company to verify the passing of the insured individual.
If you are using a funeral director they will register the death with the Birth, Deaths & Marriages Office. This is done after the funeral. It can take about five to ten working days to obtain copy of the death certificate from the births and deaths office in Wellington.
It’s advisable to obtain more copies than initially required, as additional copies may be needed for other financial matters.
Once the insurance company receives the death certificate and the claim is initiated, they will review the policy and the circumstances of the death to determine if the death benefit is payable. This process generally takes a few weeks, although the duration may vary depending on the complexity of the policy and any additional investigations that need to be conducted.
4. Contacting the life insurance company
After the insured individual’s death, it’s crucial for the policy owners to contact their life insurance company as soon as possible. Upon written notification the insurance company releases the bereavement benefit first. The amount of bereavement benefit varies from insurer to insurer. It can be the anywhere between $10,000 to $25,000. This amount is paid out up front and is normally deducted from the full insurance pay-out.
The insurance company will provide guidance on the specific steps and documentation required to initiate the claims process. Usually this is completed claim form and a copy of the death certificate.
When contacting the insurance company, be prepared to provide the policy number, the insured individual’s full name and date of birth details, this will help the company locate the policy and verify the information. You can also contact your adviser who can help you with the claim process. It’s also advisable to have a copy of the policy on hand, as it may contain additional information, or instructions related to the claims process.
The insurance company will assign a claims representative who will serve as the main point of contact throughout the process. The claims representative will guide the policy owner through the necessary steps and answer any questions or concerns they may have. It’s important to maintain open communication with the claims representative and promptly provide any requested documentation to ensure a smooth claims process.
5. The claims process for life insurance policies
The claims process for life insurance policies typically involves several steps. Once the claim is initiated, the insurance company will review the policy and the circumstances of the insured individual’s death. They may request additional documentation, such as medical records or an autopsy report, to verify the cause of death.
The insurance company will also conduct a thorough investigation to ensure that all policy requirements were met. This includes verifying that the policy was in force at the time of the insured individual’s death and that all premiums were paid up to date.
Once the claim is approved, the insurance company will notify the policy owner and provide them with the necessary paperwork to receive the life insurance pay out. The policy owner will need to complete and return the required forms (including a discharge form) and any additional documentation requested by the insurance company.
6. Common misconceptions about life insurance after death
There are several common misconceptions regarding life insurance policies after death. One of the most prevalent misconceptions is that the insurance company will automatically contact the policy owners upon the insured individual’s passing. It is the responsibility of the policy owners to notify the insurance company and initiate the claims process.
Another misconception is that life insurance payouts are subject to income tax. In most cases, the payout received by the policy owner is not taxable as income. However, if the life insurance is for business purposes, or the premiums are paid out of a business where the premiums are treated as an expanse then the funds may be subject to taxation. It’s important to consult with a tax professional to understand the tax implications specific to your situation.
Additionally, some individuals mistakenly believe that life insurance policies will cover any cause of death. While most policies cover death due to natural causes or accidents, they may exclude certain situations, such as death resulting from suicide within the first 13 months of the policy or if death is caused while being involved in a criminal activity. It’s crucial to review the policy terms and any exclusions to understand the coverage limitations.
7. Life insurance policy options for policy owners
Once the life insurance claim is approved, the policy owners have several options for receiving the life insurance pay out. The most common option is a lump sum payment, where the entire sum insured is paid out in a single payment. This option provides immediate access to the funds and allows the policy owner to use the money as needed.
Alternatively, there is life income cover where a monthly benefit is paid to the policy owner for the chosen period of time. This option provides a steady stream of income over a specified period. The instalments can be structured to meet the policy owners’ monthly financial needs. This option can provide long-term financial security and help ensure that the death benefit lasts for an extended period.
This need needs to be set up at the time of putting the cover in place.
8. Planning for the afterlife of your life insurance policy
To ensure a smooth transition and claims process for your life insurance policy, it’s important to take proactive steps to plan for the afterlife. Regularly review and update your will to ensure that it reflects your current wishes. Communicate with your loved ones about the existence of your life insurance policy and provide them with the necessary information to locate the policy in the event of your passing.
Consider organizing your important documents, including your life insurance policy, in a secure location that is easily accessible to your beneficiaries. This will help expedite the claims process and ensure that your loved ones have all the necessary information at hand.
Lastly, consult with a financial advisor or estate planner to ensure that your life insurance policy aligns with your overall financial goals and estate planning objectives. They can provide guidance on the appropriate coverage amount, policy type, and beneficiary designations to ensure that your loved ones are fully protected.
Conclusion: Ensuring your loved ones are protected
Understanding what happens to your life insurance policy after you pass away is crucial for both you and your beneficiaries. By familiarizing yourself with the claims process, the importance of beneficiaries, and the different payout options, you can ensure that your loved ones are protected financially.
Remember to keep your will up to date, regularly review your policy, and communicate with your loved ones about your life insurance coverage. By taking proactive steps and planning for the afterlife of your life insurance policy, you can provide your loved ones with peace of mind and financial security during a difficult time.
Getting Advice
Life insurance can sometimes be difficult to understand, and it’s important you get the cover you need. If you are in the market for Life Insurance, we recommend getting advice from an Insurance broker. Lifestyle Solutions are an independent broker with over 20 years’ experience and expertise to help you with the options for cover. We have access to products from a variety of insurance companies and help you find the right life insurance plan to suit your lifestyle.
Disclaimer: The information contained in this blog is an overview and general information only. It may not be relevant to your individual circumstances. Before making any investment, insurance or financial planning decisions, based on information provided in this blog, please use your discretion and consult a professional adviser first. You can read our full disclosure statement here.
