Purchasing life insurance is a way to protect your loved ones. It helps provide the financial support they may need after you pass. You may have young children whose education you’d like to pay for, or your spouse may need help to pay off a mortgage or other debts. It’s important to understand how and when life insurance payouts are delivered to your beneficiaries — the people you nominate to receive the benefits after you pass.

Filing a Claim

Following the death of an insured, it is important to contact the life insurance company as soon as possible to begin the claims process. Life insurance companies will likely require paperwork and supporting evidence to process the claim and life insurance payout.

If you are the beneficiary of the policy, you may have to provide a copy of the policy with the claims paperwork. They’ll also want a certified copy of the death certificate. You’ll also need to provide a signed statement of claim, which is sometimes called a request for benefits.

When Benefits Are Paid

Life insurance benefits are typically paid when the insured party dies. After a beneficiary files a death claim, most states allow insurers 30 days to review the claim, after that they can pay it out, deny it, or ask for additional information. If a company denies your claim, they generally provide a reason why. Most insurance companies pay within 30-60 days after the claim is made. Different things can cause a delay in payment. Make sure you talk to your agent to understand situations that would delay your insurance payment.

Life Insurance Payout Options

When you purchase your life insurance, you can decide how your death benefit is paid out. Talk to your agent to go over what the best option is for you and your situation. Taking a lump sum isn’t always the best choice.

Lump Sum

This is default payout of most policies. You take the payment in one large piece.

Installments and Annuities

This gives the proceeds and accumulated interest paid regularly over the life of the beneficiary. This allows you to select a guaranteed income stream between five and 50 years, or even guaranteed income for life. This is a good option for income-protection. You do have to remember that any interest income is subject to taxes.

Sometimes it may be better to take a lump sum since you could end up paying more in taxes on interest if the death benefit is fairly high.

Retained Asset Account

Some insurers may allow large policies a checkbook instead of a lump sum or regular installments. The insurance company keeps the payout in an account, and you can write checks to use the payout. It would not allow deposits but would pay interest!

Pre-Death Benefits

There are some options now that you can select that would allow you to draw against the face value of your policy in the event of a terminal, chronic, or critical illness. Policies with these provisions accelerate the payment of the death benefit to you, while you are still alive, effectively making you the beneficiary of your own policy!

Life insurance gives both policyholders and their beneficiaries peace of mind knowing that they won’t have a financial burden after the death of a loved one. Talk to your Farm Bureau agent to help make sure you are prepared and have the best life insurance payout option for you.