Payment of Claims

A claim and its payment are the end result of the insurance process. With respect to life insurance, this means that the insured has died and the beneficiary is in line to collect from the insurer what is due. Unlike property or casualty insurance, claims made on a life insurance policy are rarely negotiated. They are either paid or denied. When proof of the death of the insured arrives at the insurer's claims department, the records are checked to validate that the policy was in force at the time of death and ensure that the person to whom the policy proceeds are to be paid is the rightful beneficiary.

When an insured dies, the life insurance company should be notified as soon as is possible and practical. Once the company has received the proper forms, there's usually little or no delay in payment of the claim, especially when it's obvious that the claim is valid – the policy is in force, the beneficiary is available, there's no evidence of suicide within the limitations of the contract's suicide clause, etcetera. Valid life insurance claims are generally paid in relatively short order, usually within a few days. This policy also helps to foster goodwill with the public, which is one of the life insurance industry's most valuable selling tools.

In most jurisdictions, life insurance companies are required to pay death claims within a specified period of time after receiving proper notification; this timeframe is typically sixty days. If there's a delay in the payment of a claim, the usual reason is that the company has not been properly notified of the insured's death. A formal proof of death form of some type is generally required, in addition to a death certificate completed by the attending physician or coroner. When a covered individual dies, the insurance agent should complete any proof of death form that the insuring company requires and have it signed by all necessary parties. The agent should then forward the form along with the death certificate to the company as quickly as possible.

In the fields of property or casualty insurance, the dollar amount of individual claims paid is often less than the face amount of the policy. In contrast, life insurance is generally paid at the full face value of the policy. There are, however, a few exceptions to this rule: the first is when there's an outstanding loan against the cash value of the policy. The amount of the loan, along with any unpaid interest, is deducted from the policy's face amount before payment is made to the beneficiary. The second exception is if there's a premium payment due. Insurance contracts often extend a grace period of up to a month after passing of the premium due date before the policy lapses. If the insured dies within this grace period, the amount of the premium due would be deducted from the policy's face amount before payment is made to the beneficiary.

The third exception that would prevent a life insurance policy's full face value from being paid is when an error was made in determining the age or gender of the insured at the time the policy was issued. If such an error is discovered upon the insured's death, the insurance company will compute the face amount that the premium would have purchased if the accurate information was originally used, and pay that amount to the beneficiary. Such occurrences are actually not that unusual. Some may be intentional, but most are simply mistakes. In either case, the discrepancy is not deemed material enough to completely void the policy.