How Does Life Insurance Work After Death?

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When you are thinking about taking out life insurance, it’s important that you consider what actually happens in the event of your death – how will your life insurance get to the people that need it? Simply taking out a life insurance policy is not always enough, so thinking a little about the logistics is important to ensure it all goes the way you want.

What happens to your life insurance once you die?

The first thing worth mentioning is that it’s the responsibility of the beneficiary of your life insurance policy to come forward and ask the insurer for the money. It is not the job of the life insurance company to realise that you have passed away and chase the intended beneficiaries.

It is really important that you have made a will that states clearly who you intend the money to go to, and also informs them of your life insurance policy. Include the contact details for your insurer and your policy number, as these are crucial. Without them, your beneficiaries will have to do a lot of investigating to find the policy.

If everything is in order, then the beneficiary can contact the insurer with the death certificate and the claim will be processed and paid out.

Who gets your life insurance payout when you die?

There are a few ways to have your life insurance paid:

Into the estate

If you don’t specify the beneficiaries as part of the life insurance policy, then it will, by default, become part of your estate. If you die with a will, then your wishes will be known and followed.

Should you die without a will, however, then you will die intestate and the rules of intestacy will govern where the money goes. Primarily, this means your money will go to your legal next-of-kin – typically a spouse or child.

Note that life insurance that forms part of the estate will be eligible for inheritance tax if the estate value now exceeds the inheritance tax threshold.

Making a will is also important for making sure there are no arguments over the estate and your life insurance pays out.

To a specific beneficiary

If you have stated that a beneficiary is part of your life insurance policy, then the money can be claimed only by them or, if they have died before you, their heirs.

Into trust

If you set up your life insurance to be paid into trust, then the money will be held in trust appropriately and distributed as per the terms of that trust.

Paying into trust is an excellent way to mitigate inheritance tax and can also be used to pay an inheritance tax bill on a large estate without the need to liquidate assets, such as the family home.

How long does it take to get life insurance money after a death?

Most standard life insurance policies are paid within 30 to 60 days of the claim.

There are some circumstances where the length of time could be longer. This is usually when the insurer needs to carry out some level of investigation into the death. This can happen if the death is due to suicide or forms part of a police investigation.

Some life insurance policies will have a waiting period (also known as deferment period) during which time the life insurance either is not paid out, or the life insurance payout amount is lowered. The waiting period is the amount of time you (or your beneficiaries) have to wait before the full insurance level kicks in.

One example of this is over 50s life insurance, which has a waiting period of one or two years. During this time, it will not pay out the full sum assured, but instead, it will pay out an amount equal to the total amount of premiums that you have already paid up until that point.

What are the reasons life insurance won’t pay out?

There are very few situations when life insurance won’t pay out, with over 97% of life insurance policies in the UK paid in full without delay.

If the insurance company sees fit to contest your life insurance policy, it is typically because they believe that a level of fraud has occurred. For more information, read our article 99 Reasons Life Insurance Won’t Pay Out.

There could also be the situation where the life insurance policy is no longer in place, despite being mentioned in the will and other documentation. Remember, life insurance is only valid if the premiums are up to date – a failure to cover the most recent premium payments could mean that the policy has lapsed and is invalid. Though potentially devastating to the surviving family, it is not the insurer’s responsibility to uphold a lapsed policy.

For this reason, it is very important to remember to prioritise your life insurance payment – a lapsed policy will pay out nothing, no matter how much money has been paid into it previously.

Other life insurance policies may have a specified term associated with them. Both level term assurance (LTA) and decreasing term assurance (DTA) policies have an end date after which time the policy is considered finished and cover is no longer provided. If you die after your policy term is complete, then your insurance company will not pay out.

Joint life insurance policies

If you have a joint life insurance policy set to only pay out when both policy-holders have passed away, then no one will be able to make a claim if the other policy-holder still lives. Remember to make sure that any beneficiaries fully understand the specifics of the policy.

How Quick Quote Protect can help you determine what happens to your life insurance after death

At Quick Quote Protect we have a team of expert professional advisors to help you through the minefield of life insurance complexities and end up with the life insurance policy that properly suits you. We work with all the major life insurance providers in the UK and have experts in everything, from inheritance tax to setting up trusts.

It is our job to work with you and help you understand what happens when the owner of a life insurance policy dies. We will listen to your personal situation and can then advise you on how payouts work and the best set-up for your needs.

Unlike other brokers who merely work to obtain the maximum possible commission on the life insurance they sell, we are registered advisors and will help you by sharing our experience and training to get the most out of your life insurance.

Give us a call at Quick Quote Protect today to discuss any aspect of a life insurance payout after death, or fill in our contact form to have someone get back to you at a convenient time.