Unlike many estate assets, if you’re looking to collect the proceeds of a life insurance policy, the process is fairly simple, provided you’re named as the beneficiary. That said, following a loved one’s death, the whole world can feel like it is falling apart, and it is helpful to know exactly what steps need to be taken to access the insurance funds as quickly and easily as possible during this trying time.
And if you have been dependent on the deceased for regular financial support and/or are responsible for paying funeral expenses, the need to access insurance proceeds can sometimes be downright urgent.
Below, I have outlined the typical procedure for claiming and collecting life insurance proceeds, along with discussing how beneficiaries can deal with common hiccups in the process. However, because all life insurance policies are different and some involve more complexities than others, it is always a good idea to consult with a Family Business Lawyer® if you need extra help or guidance.
Filing a claim
To start the life insurance claims process, you first need to identify who the beneficiary of the life insurance policy is—are you the beneficiary, or is a trust set up to handle the claim for you?
We often recommend that life insurance proceeds be paid to a trust, not outright to a beneficiary. This way, the life insurance proceeds can be used by the beneficiary, but the funds can be protected from lawsuits and/or creditors that the beneficiary may be involved with—even a future divorce.
In the event that a trust is the beneficiary, contact us so that we can create a certificate of trust that you (or the trustee, if the trustee is someone other than you) can send to the life insurance company, along with a death certificate when one is available.
In any case, you (or the trustee) will notify the insurance company of the policyholder’s death, either by contacting a local agent or by following the instructions on the company’s website. If the policy was provided through an employer, you may need to contact their workplace first, and someone there will put you in touch with the appropriate representative.
Many insurance companies allow you to report the death over the phone or by sending in a simple form, without requiring the actual death certificate at this stage. Depending on the cause of death, it can sometimes take weeks for the death certificate to become available, so this simplified reporting speeds up the process.
From there, the insurance company typically sends the beneficiary (or the trustee of the trust named as beneficiary) more in-depth forms to fill out, along with further instructions about how to proceed. Some of the information you’re likely to be asked to provide at this stage includes the deceased’s date of birth, date and place of death, their Social Security number, marital status, address, as well as other personal information.
Your state’s vital records office creates the death certificate, and it will either send the certificate directly to you or route it through your funeral/mortuary provider. Once you’ve received a certified copy of the death certificate, you’ll send it to the insurance company, along with the other completed forms requested.
If more than one adult beneficiary was named as a beneficiary, each beneficiary should provide his or her own signed and notarized claim form. If any of the primary beneficiaries died before the policyholder, an alternate/contingent beneficiary can claim the proceeds, but he or she will need to send in the death certificates of both the policyholder and the primary beneficiary.
While policyholders are free to name anyone as a beneficiary, when minor children are named as beneficiaries, it creates serious complications, as most insurance companies will not allow a minor child to receive life insurance benefits directly until they reach the age of majority. And the age of majority varies between states—with some it is 18, and others it is 21.
If a child is named as a beneficiary and has yet to reach the age of majority, the claim proceeds will be paid to the child’s legal guardian, who will be responsible for managing those funds until the child comes of age. Given this, in the event that a minor is named, you will need to go to court to be appointed as legal guardian, even if you’re the child’s parent. This is why we recommend never naming a minor child as a life insurance beneficiary, even as a backup to the primary beneficiary.
Rather than naming a minor child as a life insurance beneficiary, it is often better to set up a trust to receive the proceeds. By doing that, the proceeds would be paid into the trust, and whomever is named as trustee will follow the steps above to collect the insurance benefits, put them in the trust, and manage the funds for the child’s benefit.
Whatever you decide, you should consult with us as your Family Business Lawyer® to determine the best options for passing along your life insurance benefits and other assets to minor children.
Insurance claim payment
Provided you fill out the forms properly and include a certified copy of the death certificate, insurance companies typically pay out life insurance claims quickly. In fact, some claims are paid within one-to-two weeks of the start of the process, and rarely do claims take more than 60 days to be paid. Most insurance companies will offer you the option to collect the proceeds via a mailed check or transfer the funds electronically directly to your account.
Sometimes an insurance company will request you send in a completed W-9 form (Request for Taxpayer Identification Number and Certification) from the IRS in order to process a claim. Most of the time, a W-9 is requested only if there is some question or issue with the records, such as having an address provided in a claim form that doesn’t match the one on file.
A W-9 is simply a way for the insurance company to verify information to prevent fraudulent activity. To this end, don’t be alarmed if you are asked for a W-9. It’s a common verification practice, and it doesn’t automatically mean the company suspects you of fraud or plans to deny your claim.
While collecting life insurance proceeds is a fairly simple process, it’s always a good idea to consult with us as your Family Business Lawyer® if you have any questions or need help to ensure the process goes as smoothly as possible during the often-chaotic period following a loved one’s death.
This article is a service of Pantea I. Fozouni, Family Business Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.