What happens to a life insurance policy when the owner dies?
Find out what happens to a life insurance policy when the owner dies and what you need to do if you're the beneficiary on the policy.
Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York
When it comes to life insurance, many people avoid sharing their plans with loved ones. It's hard to find the right time, and the conversation has the potential to be uncomfortable. But it's important to discuss your end-of-life plans and reassure the people you care about that they're provided for after you're gone.
Life insurance is pretty cut-and-dried. You sign up for a policy, pay the premiums and, in some cases, don't have to think about it again. But your beneficiaries might not know what's involved or what's required of them if you die.
Here are a few things to keep in mind if you're navigating a death benefit claim.
Who's who in a life insurance policy
Just because the owner of a life insurance policy dies, it doesn't mean that a death benefit gets paid. The death benefit is applicable only upon the death of the insured person. That's why it's important to understand who's who in a life insurance policy.
- Policyowner: The person or entity who owns the contract and the right to make decisions about it. This includes choosing the beneficiaries, keeping the contract in force, executing riders, etc.
- Payor: This person is often the owner of the policy. But the payor can be any person or entity that's responsible for paying the policy premiums.
- Insured: This is the person covered by the policy. Again, this person is usually the owner, but that's not always the case. For example, a parent could own the life insurance policy covering their child.
- Beneficiary: The person or entity who receives the payout if the insured person dies.
In the case where the owner dies, but they're not the insured, it could cause a host of potential issues. It becomes more complicated if the owner did not name a successor owner to take the policy. In that case, the policy would go through probate to determine the new owner. Unfortunately, that new owner might not have been the original owner's preference.
How life insurance companies contact beneficiaries
One of the most common questions is: Do life insurance companies contact beneficiaries?
Most insurance companies attempt to contact beneficiaries. But that's only if they're aware something happened. In most cases death benefits aren't paid out unless someone files a claim.
Even then, there could be cause for delay. For one, the insurance company may not have up-to-date information for the beneficiary. After all, policies can be in effect for years and owners often forget to update their beneficiary contact information.
The takeaway? It's a good practice to have beneficiary and estate planning conversations with your loved ones, so they can be aware and prepared.
Steps for finding a life insurance policy after a parent or relative dies
If a loved one has died, you might find yourself wondering how to claim a life insurance payout. First, you want to find out whether a policy exists.
Need to find a life insurance policy for a deceased parent or other insured person? Follow these two steps:
- Get a copy of the death certificate. You'll need it to file a claim if you find out there's a life insurance policy.
- Search the databases. If you've already looked through your loved one's personal files and haven't found any information about a policy, there are several services that can help you check for a policy. For an online option, try the NAIC Life Insurance Policy Locator (Opens in New Window).See note1 You also can mail a search request to the MIB Policy Locator Service (Opens in New Window).See note1
Timeframe for receiving a death benefit
Most life insurance claims get paid within 30 to 60 days. Many states give insurers 30 days to review the claim; after the review, they can pay it, deny it and tell you why, or ask the beneficiary for more information.
Several situations could delay payment. For example, if the policyholder dies within the first two years of the policy, it could cause delay while the company reviews contestability clauses. Payment also could be delayed in cases of homicide, a death caused by illegal activity or application fraud.
How can USAA help?
If your loved one was a USAA member, we're here to help. Our dedicated Survivor Relations team can help you navigate this difficult time. We can connect you with the life claims department to check for a policy and to offer help filing a claim.