Who receives the policy death benefit?

After a loved one dies, beneficiaries need to know how to collect life insurance and Social Security payments they're entitled to, because the executor of the estate doesn't usually handle this task. Especially if survivors depended on the deceased person for financial support, they may need to quickly get cash for urgent, ongoing expenses such as the mortgage and credit card payments. Knowledgeable survivors can usually get access to many sources of cash, which may include life insurance or Social Security survivors benefits. To learn about other benefits that may be available to family members, see Claiming Pensions, Veterans, and Other Benefits: Information for Executors and Beneficiaries.

Life Insurance and Annuity Proceeds

An insurance policy or annuity is a contract between the company that sold it and the person who bought it. As a result, the proceeds don't go through the probate process (see How the Probate Process Works: Information for Executors), and the executor isn't in charge of them. It's common for the policy beneficiary, not the executor, to deal with the insurance company and collect the benefits directly. But executors may be called upon to help beneficiaries claim the payments they're entitled to.

Life Insurance

Proceeds from life insurance policies can provide quick and welcome income for surviving family members after a death. The beneficiary will probably want to get the claim process started as soon as possible. You'll want to find out the answers to the following questions:

• What type of life insurance policies -- term, whole life, or variable life -- did the deceased have?
• Was there any credit insurance (to pay off credit card balances or, sometimes, amounts owing on major purchases such as furniture) or mortgage insurance (to pay off a mortgage)?
• Were the policies still in force at the time of death?
• Who are the beneficiaries?
• How much will the company pay?

To claim life insurance benefits, the beneficiary should contact the insurance company's local agent or check the company's website. Some companies ask beneficiaries to start by sending in a form that merely reports the death; they then send the beneficiary a packet of forms and instructions explaining how to proceed. Generally, a beneficiary can apply for the proceeds simply by filling out the insurance company's claim form and submitting it to the company along with a certified copy of the death certificate.

If more than one adult beneficiary was named, each should submit a claim form. If the primary beneficiary died before the policyholder did, then the alternate (contingent) beneficiary can claim the proceeds. An alternate will need to submit the death certificate of the primary beneficiary in addition to the death certificate of the policyholder.

Annuities

Annuities, like life insurance policies, are contracts with insurance companies. Usually, annuities provide retirement income to the policy owner, but under certain circumstances they can result in payments to a beneficiary. Unlike most other nonretirement plan investments, the earnings on annuities are not taxed until they are distributed. As with life insurance policies, you'll want to find out some basic information on annuities:

• What annuity policies did the deceased have?
• What type of life annuities -- fixed or variable -- did the deceased own?
• Do the annuities have a death benefit (not all do)?
• Who are the beneficiaries?
• How much will the company pay? Typically the insurance company guarantees that when the owner dies, the beneficiary will receive the greater of the accumulated value of the annuity (including earnings) or the amount originally invested in the annuity, less distributions.

To claim annuity benefits after the policy owner dies, the beneficiary should request a claim form from the insurance company that issued the annuity. The beneficiary will need to submit a certified copy of the death certificate with the claim form.

Social Security Benefits: One-Time Death Benefit

The Social Security death benefit is relatively easy for surviving family members to claim and quick to be paid, but it is currently a small lump-sum payment of $255 (assuming the deceased person had enough Social Security work credits). The surviving spouse or dependent children can claim this benefit. This payment is in addition to ongoing survivors benefits to which the spouse or children may be entitled.

Go to the local Social Security office to claim benefits. The staff can help with the paperwork and explain what information and documents -- a certified copy of the death certificate, for example -- are needed. To find the closest office, check the government listings in the phone book, use the "How to Find Your Local Office" service at www.ssa.gov, or call the SSA, toll-free, at 800-772-1213.

Social Security Benefits: Monthly Survivors Benefits

Family members may also be entitled to monthly survivors benefits. You don't have to be of retirement age to receive benefits: dependent children, surviving spouses, and even some ex-spouses may be eligible for survivors benefits. The more quickly family members apply for these benefits, the better, because some of them are not retroactive.

Applicants can start the application process over the telephone (800-772-1213) or online at www.ssa.gov, which may speed things up, but they won't be able to complete the process without a face-to-face meeting with a staffer at an SSA office. Generally speaking, the following family members may be entitled to monthly survivors benefits.

Surviving spouses. A surviving spouse who is already receiving Social Security benefits based on the deceased person's earnings just needs to report the death to the SSA at 800-772-1213. The SSA will change monthly benefits to survivors benefits. If the spouse is already getting benefits, the SSA will check to see whether or not the survivors benefit would be higher. The spouse will receive the higher amount.

A surviving spouse who is not already getting benefits or is receiving benefits based on his or her own earnings record will need to apply for survivors benefits. Eligibility for survivors benefits will depend on the survivor's age and family circumstances. Benefits are given to any surviving spouse who:

• takes care of the deceased person's child who is under 16 or disabled (this is commonly called the "mother's benefit" or "father's benefit")
• is 60 or over, or
• is 50 or older and becomes disabled within seven years of the worker's death or within seven years after the mother's or father's benefit ends.

Former spouses. Generally, divorced spouses are eligible for benefits under the same rules as surviving spouses, if the marriage lasted at least ten years and the divorced spouse does not remarry before age 60. If, however, the ex-spouse is taking care of the deceased person's young or disabled children, it doesn't matter how long the marriage lasted.

Unmarried children. Dependent children of the deceased person are eligible for benefits if either of the following apply:

• They are 17 or younger (or up to age 19 if they are attending high school full time). Grandchildren and stepchildren may also be eligible under certain circumstances.
• They are disabled, no matter what their age, and became disabled before age 22.

If children are already receiving benefits, the SSA will change the benefits to survivors benefits after the family notifies the SSA of the death.

Dependent parents. Parents who depended on the deceased worker for at least half of their support and who are at least 62 years old are also eligible for benefits.

For More Information

For a detailed explanation of survivors benefits, see Social Security, Medicare & Government Pensions, by Joseph Matthews, with Dorothy Matthews Berman (Nolo). For more information on claiming insurance and Social Security benefits -- and everything else you need to know about settling an estate -- get The Executor's Guide: Settling A Loved One's Estate or Trust, by Mary Randolph (Nolo).

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A death benefit is a sum of money paid out to the beneficiary or beneficiaries of a life insurance policy, as long as the insured died while the policy was in effect.

The death benefit is the primary purpose of buying life insurance coverage; it’s what your premium payments cover throughout the life of your policy.

Table of contents

How do death benefits work?

Life insurance pays out a tax-free death benefit if your policy is active when you die.

There are several different types of life insurance policies, but the main categories are term life insurance — the more affordable option — and permanent life insurance.

Term Life Insurance

Term life insurance policies are in force for a set period or term, which typically range in length from 10 to 30 years. If the insured dies within the policy term, the insurer pays out a death benefit equal to the policy’s face value.

Permanent Life Insurance

Unlike term life insurance, permanent life insurance policies such as whole life insurance do not have an expiration date. Rather, they remain in force as long as premiums are paid. If the insured dies while the policy is in force, the death benefit is paid out to the beneficiaries.

Lump-sum payments vs. annuitized payments

The most popular ways to cash out a death benefit is receiving it as either a lump-sum payment or as an annuity — a monthly or annual payment.

Most beneficiaries choose the lump-sum payment and work with their financial planner or advisor to set up a financial plan.

What happens to the cash value component of whole life insurance after you die?

Whole life insurance and other permanent life policies feature a savings component called "cash value,'' which functions as a guaranteed investment with a slow growth rate.

The cash value can be paid to you while you’re alive, but only if you surrender the policy. You can also take loans from the cash value account, but if you don't repay them, the outstanding loan amount will be deducted from the death benefit.

The cash value will not be paid out to your life insurance beneficiaries. If you have a $1 million policy with $500 in the cash value, your beneficiaries would only receive $1 million upon your death.

To get the permanent life policy to pay out both the cash value and the face amount, you could add an optional insurance rider that would increase your premiums further.

How to claim a life insurance death benefit

Once the life insurance policy owner dies, the designated beneficiary or beneficiaries can claim the death benefit. Life insurance companies typically take up to a month to review a claim before paying out the death benefit. They may request further documentation.

Documents required to file a life insurance claim

• Certified copy of the death certificate
• Life insurance policy document or policy number
• Claim form

Steps to filing a life insurance claim

1. Call the insurer with the policy number and the insured’s details.
2. Complete and submit a life insurance claim form (some companies have an online process, while others send a letter).
3. Attach a copy of the death certificate and other required documents.
4. Allow 5-7 days for processing and approximately 30 to 60 days to receive the funds.
5. Once the claim is submitted, determine how the proceeds will be distributed.

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Why might a life insurance claim be denied?

According to a spokesperson for the American Council for Life Insurers (ACLI), less than 0.5% of life insurance claims were disputed at the end of 2019. Although it is not common for claims to be denied, there’s a variety of reasons why your death claim might be rejected.

A lapsed policy

For a life insurance policy to pay out, the policy must be in force, meaning the policyholder was actively making payments to it. If they neglected to make payments and the grace period expired, the policy could lapse, and the death benefit claim could be denied.

Material misstatements

Misleading or false statements on your life insurance application could lead to your beneficiaries' claim being denied. This includes providing incorrect information about your age or medical history or those of your parents.

Exclusions

Some life insurance policies have exclusions for fatalities caused by risky activities such as skydiving, scuba diving, piloting a plane and rock climbing. Suicides are also excluded from coverage for up to two years during what’s known as the policy’s contestability period.

If your life insurance claim is denied, hiring an insurance lawyer could be your best bet to dispute it.

Death benefits are paid out to the beneficiaries you named on your policy. Your life insurance beneficiaries can be one or more persons, a trust that is managed by a trustee, a charity or your estate.

You can set up primary beneficiaries and contingent beneficiaries. If you die, your primary beneficiaries are the first in succession to receive the death benefit. If your primary beneficiaries die before you, the death benefit will go to your secondary or contingent beneficiaries.

Beneficiary designations can be changed at any time, but you should update this information whenever you experience a life event such as a marriage or divorce. The death benefit will be paid out to the person or persons listed on the beneficiary designation, regardless of the instructions on your will.

Most funeral homes request payment up-front, so your surviving family members will have to pay for the expense out of pocket. However, some life insurance companies will also offer an expedited payout for funeral expenses.

There’s also the option to pre-pay for your funeral expenses, so your heirs don’t have to come up with the money after you die.

If you believe you’re the beneficiary of a policy, you can take the following steps to find and obtain your benefits:

1. Check your loved one’s bank and credit card statements for any payments made to insurance carriers.
2. Contact any current or past financial advisors to see if one of them sold the deceased a policy.
3. Contact the human resources department at their last workplace to see if they provided an employer-sponsored life insurance policy.
4. Try to access the deceased person’s email account and search for any information on life insurance policies.

There’s no time limit on filing a life insurance claim, so don’t worry about being late with your request for life insurance proceeds. That said, filing promptly after the insured’s death will of course speed up the payout process.

To file a claim, you should contact the insurance company or go online to start the claim process.

If you have a policy with an accelerated death benefit provision, you could receive a portion of your life insurance death benefit while you're alive. Accelerated death benefits are available to those diagnosed with a terminal or chronic illness, but some policies require the policy owner to have a life expectancy of two years or less to collect on the provision.

Depending on the policy, some disabling illnesses may also qualify you to receive an accelerated death benefit. That amount could range between 50 and 80% of the value of the policy.

• A death benefit may be disbursed in a lump sum payment or monthly or annual annuity installments.
• Lump-sum payouts are tax-free, but annuity payments are taxed.
• To file a death benefits claim, you need a copy of the death certificate, the life insurance policy information and the claim form.
• Some causes of death, such as those from risky activities or suicide, may be excluded from coverage, at least for a certain period.

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