How Does Life Insurance Work When You Die?

Thinking of buying a life insurance policy? Good idea. But how will it work when you die? Dive in to know more!

Life insurance policies help people secure their finances during their life and even after they die. They offer lifetime protection to policyholders and usually work on two major components: cash value and death benefit.

When a policyholder chooses a life insurance plan according to their needs, they not only have a guaranteed death payout but also a cash value component (which increases over time) that the insured person can withdraw and also use during their life.

The basic rule is to keep paying premiums to keep the policy in force.

Suppose you bought a whole life insurance policy, you were prompt in paying premiums and the policy was smooth. But you die. How does life insurance work when you die?

Against the premiums you had been paying when you were alive, your beneficiaries will receive a guaranteed death benefit that you must have decided when you were signing in on the policy. But filing for claims can be a delayed job.

Claiming the Benefit

The beneficiaries must contact the insurance company immediately after the policyholder dies; many states allow claims to be made within 30-60 days during which beneficiaries can accept or deny the claim based on their needs, or even ask for more information regarding the policy.

Since everything is done online, you can go to the website of your insurance company and fill out a claim form or write them an email in order to begin with the claim.

When that is through, a representative from the insurance company will contact you with further detailing and will ask you to submit some documents. Ideally these will include:

  • A death certificate of the policyholder
  • Copy of the policy
  • Personal documents such as ID

Some insurance companies may ask more documents as part of their processing, they will inform you what they require.

If the whole process is smooth and free of any loopholes, beneficiaries will get a complete death benefit during 30-60 days of filing a claim. However, there could also be unfortunate delays.

The first reason why there could be month-long delays in the payout is if the policyholder dies within 1-2 years of the policy being in force. This really complicates the process because the premiums haven’t been paid enough and the insurance company finds it risky to be paying the whole death benefit. This usually takes up to 6-8 months to resolve and the beneficiaries receive their payment after that.

A delay could also be formed if there has been an issue with the application or your form: any misleading or dishonest information about the policyholder or the beneficiaries can lead to severe delays. And if the matter isn’t solved and there is some fishy activity proved, the insurance claim can be denied by the insurance company or the State.

If everything goes smoothly, the death payout will be given without any delays.

Contingent Beneficiaries

Contingent beneficiaries are ‘second-in-line’ to be able to make a claim. If a policyholder and primary beneficiaries die together in an unfortunate accident or mishap, the payout can be claimed by the contingent beneficiaries. The policyholder chooses whoever they like as part of their primary and contingent beneficiaries.

But if the policyholder dies and primary beneficiaries are alive to make a claim, the entire payout will go to them without a dime paid to contingent beneficiaries.

In some cases there are also tertiary beneficiaries mentioned in the policy (but that happens very rarely) because the chances of the policyholder, primary and contingent beneficiaries dying at the same time are very low.

Death Benefit Payout Options

Many insurance companies have their own set of payout benefits but in different options.

One option is to pay the whole lump-sum amount to the beneficiaries in one go and they can choose to spend the money for daily expenses or save up to send a kid off to college.

The other option is paying in installments. This method works well if beneficiaries want to have some insurance amount paid to them over the course of their life- the accumulated interest is paid off throughout the time of the beneficiary.

However, it is also important to note that any interest based amount that is paid will be subject to taxation. Even though the death benefit is a tax-deferred amount, if it is being charged against interest rate it will be subject to tax according to the law.


Many people opt for life insurance policies for the peace of mind that the accumulated cash value can be used during their life and that their beneficiaries will get a guaranteed death payout after they die.

Expenses can really pile up over the years which is why family planning is very important. Paying off mortgages, medical expenses, loan repayments or wedding ceremonies are all very costly, and if you don’t earn well enough today, who knows how you’ll be able to pay for major expenses a decade later on.

Life insurance policies give this relaxation to policyholders and their families that their financial condition is secure even after the major breadwinner dies. Monthly premiums are set out for each policy plan and need to be paid promptly to keep the policy in force. When you choose a plan, make sure you inform your beneficiaries and tell them details about your policy so that they can properly file claims to benefit from the policy.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.

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