Claiming a Life Insurance Benefit: Not As Simple As it Looks
By: Jeff Brown

NEW YORK (BankingMyWay) — Filing an auto or homeowner’s insurance claim may not be as simple as you would like, but at least you know where to start: with your insurer. Filing for a life insurance benefit can be trickier.

That’s because the person who bought the policy – the insured – won’t be around to guide you, and you may not even know that a policy exists that you can benefit from.

In some cases, the final premium may have been paid years earlier, so there may be no recent financial records to indicate there is a policy. Insurance companies are responsible for finding out when policy holders die and subsequently notifying beneficiaries, and there is a “Death Master File” kept by the Social Security Administration that helps guide the process. But a number of states are investigating some insurers’ failure to do so.

In other cases, you may not know that your loved one had a policy through his or her employer. Or you might not realize that a distant relative, sibling or even your own child had named you as a secondary beneficiary to receive the payout if the primary beneficiary were no longer living at the time of the payout. In any case, there are some ways to make sure everyone gets their due.

Clearly, all problems can be avoided if the policy holder tells all beneficiaries of the policy’s existence, the policy number and benefit amount. The policy should be kept in a safe deposit box or other secure place accessible to heirs. In most cases this simply involves husbands and wives, parents and children. Also inform any financial advisors to the family, as well as the attorney likely to handle the policy holder’s will.

Once a year, the policy holder should check to be sure the insurer has current contact information for all beneficiaries.

Often grown children are squeamish about asking parents about any life insurance policies. You can try breaking the ice by handing your parents a list of your own financial accounts, in case something happens to you. Then once the conversation gets going, find out if the policy holders are keeping up with premiums. If they’re in danger of falling behind, consider helping out, as it would cost a lot more to start a new policy for an elderly person than to maintain an existing policy.

If a loved one dies without leaving complete, up-to-date financial records, heirs should look around for the less obvious types of life insurance, such as special policies to pay off the mortgage, car loan or credit card balances.

Once a policy is located, beneficiaries should start the claim process by contacting the policy holder’s insurance agent or the company that issued the policy. Insurers typically require a copy of the death certificate, and you also may need to provide proof of your relationship to the policy holder, even if you are a spouse or ex-spouse.

Be sure to read the policy yourself or have a lawyer do it. Policies don’t always identify beneficiaries by name. For instance, a beneficiary could be “the person to whom I am married at the time of my death,” which would mean an old policy could benefit a new spouse rather than an ex-spouse.

You will also have to file paperwork with the IRS so you get the tax exemption that applies to life insurance benefits.

If all goes smoothly, the benefit should be received with a few weeks of filing the paperwork. Life insurance benefits are usually paid as a lump sum. The insurer may offer to place the proceeds in a money market account with check writing privileges, but the beneficiaries can move the money anywhere they want.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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