Claiming life insurance, and what the insurer actually needs
The money goes to the named beneficiary, and how to claim it.
In short
Life insurance does not pass through the will. It goes straight to the person named as beneficiary on the policy, and that person has to claim it. To claim, you contact the insurer, send a claim form and a certified copy of the record, and the money is usually paid as a lump sum. For a beneficiary it generally arrives free of income tax.
Who receives it, and why the named beneficiary controls
Life insurance is a contract. The money goes to whoever was named as the beneficiary on the policy, and that choice controls, even over a will. If the will says one thing and the beneficiary form says another, the beneficiary form wins.
Because it passes by that designation, life insurance usually goes directly to the named person, outside probate. Each named beneficiary claims their own share.
How to claim it, and what the insurer needs
Contact the insurer to open a claim. If the coverage is group life through an employer, start with the employer or the plan administrator instead.
Ask for the claim form, which is sometimes called a claimant's statement, and send it back with a certified copy of the record. The insurer verifies the policy and the claim.
Each beneficiary files separately, and it is worth keeping a copy of everything you send.
How it is paid, and whether it is taxed
Most policies pay a lump sum. Some offer other options, such as installments or leaving the money with the insurer to earn interest.
For a beneficiary, life insurance proceeds received because of the loss are generally not taxable income. In the words of the IRS, proceeds "you receive as a beneficiary due to the death of the insured person, aren't includable in gross income."
Two exceptions to know: any interest the insurer pays on top of the proceeds is taxable, and if the policy had been transferred to someone in exchange for money, part of the payout can be taxable. Payment timelines are set by state and vary, so ask the insurer for its timeframe.
If you cannot find a policy
If you believe a policy exists but cannot find it, the NAIC Life Insurance Policy Locator is a free national service.
You submit a request, and participating insurance companies search their records and reach out to the beneficiary or the estate if they find a match. The service has connected families with billions of dollars in benefits that would otherwise have gone unclaimed.
If there is no named beneficiary, or the beneficiary is also gone
If the named beneficiary is no longer living, the money usually goes to a named backup, called a contingent beneficiary.
If there is no living beneficiary at all, the payout typically goes to the person's estate under the terms of the policy, and from there it may pass through probate.
If two people each claim to be the rightful beneficiary, the insurer can ask a court to decide who receives the money.
Watch-outs
- The payout is generally not income taxable to the beneficiary, but interest the insurer pays on top of it is taxable.
- You are entitled to the full sum. Do not accept a retained asset account without understanding it.
- Payment timelines are set by state and vary, so ask the insurer for its timeframe rather than assuming.
Common questions
Does life insurance go through the will?
- No. It goes to the named beneficiary, and that overrides the will.
Is a life insurance payout taxed?
- Generally not as income to the beneficiary. Interest paid on top is taxable, and a policy that was transferred for money can be partly taxable.
What do we need to file a claim?
- The insurer's claim form and a certified copy of the record. Group coverage through work is claimed through the employer or the plan.
How do we find a lost policy?
- Use the free NAIC Life Insurance Policy Locator.
Sources
Related
- Submitting a life insurance claim
- Employer life insurance
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