Life Insurance Blog

Life Insurance And The Claim Process
November 15th, 2009
in Life Insurance

Ponte Vedra Beach Life Insurance News — If you are the beneficiary to a life insurance policy after someone dies, you will have to contact the insurance company to file a claim.  There is some simple paperwork involved in this process, the most important of which is the death certificate.  You will want to obtain several copies of this document, and one of them needs to be submitted to the life insurance company.  Shortly thereafter, the claim should be paid.

The insurance company can issue a check to you as the sole beneficiary, but there are other options to consider.  These other options are called “income options”; they involve smaller payments to you over time. 

When deciding how the claim payment will be made, you need to examine whether the benefits will be used to protect a family over time, provide for your own retirement, or if the money is simply needed to pay off large debts and/or taxes.

Taking a lump sum means that one single payment is made for the face value of the policy.  That money can then be used in any way that the beneficiary chooses.  If this is a large sum of money, special consideration should be given to the income potential of the long haul.  Interest earned from a large settlement over time could provide for a steady income if invested properly.

If the benefits will be used for long term then income options should be considered.  The life income option will pay a guaranteed income for a specified period, or for your entire life.  The insurance company will base the payment on your age and gender.  This type of benefit has the security of knowing that the income will always exist for the rest of your life.  This scenario is common with family members who set up a life insurance policy to protect a spouse.  A Joint and Last Survivor payment option will pay the last living person on the policy benefits until they die.

Another payment option is the Specific income provision.  In this scenario, the insurance company pays part of the benefit from the face value of the policy on a regular basis, with interest.  This form of payment may yield a higher regular payment, but the benefit will end when the money runs out.

A perpetual payment option called an Interest Income Option works well if the face value of the policy is large enough to provide adequate income from the interest alone.  This keeps the original policy investment in tact, and simply pays the interest earned from that investment to the beneficiary.  That income can then be bequeathed to another person in the event of the beneficiary’s death.  This option is the ultimate long-term plan for financial security, but it does require a significant claim payout.

A Fixed Period option can be considered as well.  In this scenario, the beneficiary can specify a time for the payout, and the insurance company will calculate what amount can be paid in principal and interest over that period.  This option would work well to support children until they reach the age that they can leave home and support themselves.

Consider payment options carefully when collecting large insurance settlements.  It is important to wring as much interest income over the appropriate time to get maximum benefit from a life insurance settlement.

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