Here's What Happens if Your Loved One Died With Life Insurance

When a person purchases life insurance, they put protection in place for their surviving loved ones. A death can result in a loss of the deceased person's income or services, which could mean survivors don't have that cash going into their checking accounts to pay essential bills. Life insurance protects against this fate.

But, what exactly happens when a loved one dies with life insurance? Here's what surviving family members can expect.

The beneficiaries should obtain a copy of the death certificate

A life insurer is going to require proof of death to pay out a claim. Typically, this comes in the form of a death certificate. Usually loved ones will receive a death certificate from the funeral home or mortuary.

It is also possible to obtain a copy of the death certificate from the vital records office in the state where the death happened. When requesting a death certificate from the vital records office, beneficiaries may need to know the place and date of death and provide information about their relationship to the deceased.

The correct forms will need to be filled out with the insurance company

Insurance companies will also require beneficiaries to go through the claims process to get the life insurance policy's death benefit. The specifics of how this works can vary by insurer. An insurance agent who provided assistance with the purchase of the policy can usually offer help to beneficiaries in claiming the death benefit. Many insurance companies also provide claim forms online, along with detailed written instructions about how to submit them.

The life insurance company will review the claim

Once the claim forms have been sent in, the life insurer will review the claim. If the policy was valid and active and the chosen beneficiary has submitted the required forms and proof of death, then the claim will move forward.

Insurers may sometimes deny a claim if there is a problem, such as a policyholder dying for an excluded reason (such as death by suicide within a short time after purchasing the policy). In most cases, however, the claim will be processed without issue after the right documents are submitted.

The life insurance company will provide a payout of the death benefit

The death benefit will become available to the deceased person's chosen beneficiaries when the life insurer has processed a claim, unless an issue comes up. Depending on how the policy is structured, the beneficiaries may able to choose one of several methods of receiving the money, including:

• A lump sum payment, which means getting the entire death benefit paid out at once.
• A set amount of the death benefit on a predetermined schedule.
• A guaranteed income for life, with the amount determined based on the beneficiary's age and the size of the death benefit.
• Only the interest from the death benefit, with the remainder of the money going to a secondary beneficiary upon the death of the primary beneficiary.

It is important to consider all of these available options to decide what makes sense. For those who aren't good at managing money, for example, receiving the income over time could be a better option.

No matter how the beneficiaries choose to receive the funds, though, the important thing is to use the money wisely since the deceased was thoughtful enough to ensure their untimely death wouldn't cause financial devastation to those they left behind.