One of the key features of life insurance is the ability to name one or more beneficiaries who will receive the policy's death benefit proceeds if the insured person dies while the policy is in force. Beneficiaries often have questions about their role, so we've developed this "Beneficiary 101" post to help make everything a bit easier. Read below for a compilation of information and answers to help you understand the basics of being named as a life insurance policy beneficiary.
Often, people who buy life insurance tell their beneficiaries that they have been named. However, there may be situations when beneficiaries aren't aware a loved one owned life insurance until after his or her passing. If you come across a life insurance policy, annual statement, or premium bill after a loved one has died, contact the insurance company or agent named on the paperwork to inform them of the insured person's death to find out if the policy was in force on the insured's date of death.
If you need help finding out if a loved one owns a life insurance policy, the National Association of Insurance Commissioners (NAIC) offers a life Insurance Policy Locator tool that can be very helpful. Simply request a search for a policy and the company will search their records for any trace of a policy in your family member's name. If found, they will let you know.
Life insurance companies are obligated to undertake good faith efforts to notify named beneficiaries of their rights to policy proceeds, so if you are entitled to proceeds under the policy, the insurer should notify you of the required steps to claim proceeds.
If you are entitled to receive death benefits under a life insurance policy, the insurance company or its authorized agent will notify you of what is required to obtain those benefits. While requirements will vary from insurer to insurer, expect to complete "death claims" paperwork and provide a certified copy of your loved one's death certificate. You may have various settlement options if you don't want or need to take the full amount of policy proceeds in a lump sum, so be sure to ask what options are available to you.
State law will control how quickly the life insurance company must act on death claims paperwork received in good order, although in most cases proceeds are paid within 30-60 days.
Proceeds from life insurance are income-tax free to beneficiaries, although there may be certain circumstances where a portion of a policy's cash value may be taxed. If your loved one's estate is subject to either state or federal estate tax, you should talk to an attorney and tax advisor to determine whether a portion of the death benefit proceeds may be taxable.
