A person takes insurance on his life (life insurance) if he is married and has small children, or he has an aged parent or two to support and he is worried what would happen to them if he dies. This is especially true if he is the only earning member. Rather than worry about their future, he buys an insurance policy so that they will get some benefit after he dies.
When an insured person dies, the beneficiary has to file a claim to gather the death benefit. The beneficiary can be a legal heir, a person mentioned as a nominee by the policyholder or a special person or persons to whom the insured person wants his money to go to.
The claim, in most cases, has to be filed as soon as possible and the company has to pay within sixty days, or two months after the death of the insured person. If the name of the claimant is clearly mentioned, then there may not be much problem. But if there is any doubt, the insurance company will check and recheck and cross check to see that the claim is legitimate and not fraud. If the company is not satisfied with the bonafides of the claimant, it has to inform the claimant within sixty days. It may turn over the cash to a court that then decides who the rightful beneficiary is.
While filing the claim the beneficiary will need to submit the name of the insured, the policy number, a certified copy of the death certificate, proof of identity and whatever else the insurance company may need. If there is more than one claimant, then they have to prove that they are the legal claimants and that the insured person wanted his insurance money to go to them. If the claimant is a minor, then the company has to make a decision. It can form a Trust or invest it till the minor gains maturity or appoint a guardian who will take charge o the money.
The death benefit may be paid as a lump sum where the company will send a check to the claimant. Or it may make an installment with interest included. Or the company makes a checking account in the claimant’s name whereby the beneficiary is given a checkbook and he can withdraw money as and when he needs it. One of the most important questions that come to most beneficiaries’ minds is whether they need to pay taxes on the death benefits. Normally the answer is no, the beneficiary does not have to pay taxes.
Sometimes the insurance companies may decline to pay the death benefits if a person dies within two years of buying the policy. It may feel that the dead person did not tell the truth or kept something hidden or did something fraud while buying the policy. If the insured person committed suicide, the company can hold back the payment and refuse to release the funds. The insurance company may also refuse to pay if there is suspicion that the policy holder might have been murdered for the money.
