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How life insurance pays the death benefit


How life insurance pays the death benefit

Companies typically pay the death benefit in a single lump sum, but there are other payment options. You or the beneficiary choose how the death benefit will be paid. Common payment options include:

  • interest option.  The insurance company retains the death benefit and pays the interest to your beneficiary at regular intervals.
  • Fixed period.  The company pays the death benefit at regular intervals, with interest, over a selected period of time.
  • Life reimbursement.  The insurance company pays the beneficiary a set monthly amount for the rest of his life. Under this option, it is possible for the beneficiary to receive more than the death benefit stated in the policy if he or she lives longer than expected.

Companies must pay death benefits in a timely manner

Insurance companies must pay death benefits within two months from the date proof of death is received and your beneficiary verified. For an individual life insurance policy, the company must also pay interest on the death benefit from the time the company receives the proof of loss statement until the time the company accepts the claim and agrees to pay. death benefit. Companies may take longer to pay the death benefit if you die during the trial period of the policy.

What is the trial period?

Life insurance policies have a contestable period of two years. If you die within this period, the company may verify the information you provided on the insurance application. If the company discovers that you provided incorrect information, or that you withheld information, it may deny payment. This can happen, even if the incorrect information is not related to the cause of death or was provided in error. If the company denies payment, it must reimburse your beneficiary for the insurance premiums.

The company may also investigate the cause of death. During the first two years of the policy, companies usually will not pay the death benefit if the cause of death is suicide. If the company does not pay the benefit, it must return the insurance premiums to your beneficiary.

Once your policy has been in force for more than two years, the company must pay the death benefit regardless of the cause of death. Your policy will have a new trial period if it is canceled and then reinstated by you. The Death Benefit Under Universal Life Option B

Policy cancellation

What happens if I don't make a payment on my insurance premium?

Most policies have a grace period of 31 days after the date your insurance premium is paid. You can pay your insurance premium during the grace period interest-free and you'll still have coverage. If you die during this period, your beneficiary receives the death benefit less any insurance premium due.

What happens if my policy has been canceled?

If you do not pay the insurance premium during the grace period, your policy will be canceled. This means that you are no longer covered and your beneficiaries will not get the death benefit when you die. Generally, you can reinstate a policy that has been canceled. To do this, you will have to pay the overdue insurance premium plus interest.

Most companies will reinstate a policy within five years. To reinstate the policy, you may need to answer some health questions or have a medical exam.

Buying life insurance

  • Make sure the agent and the company are licensed to sell insurance.  If you buy from an unlicensed company, your payee may not get paid if the company goes bankrupt or becomes insolvent. Licensed companies belong to a guaranty association that pays the claims of companies that go bankrupt or become insolvent. To find out if an agent or company is licensed, use the “Company or Agent Search” feature on our website or call our Consumer Help Line.
  • Check the company's credit rating and complaint history.  To find out how creditworthy a company is and the number of customer complaints, call the Consumer Help Line or use the Company Search feature on our website.
  • Look to buy a policy with no sales commission or a low sales commission. You could save money by purchasing a policy with low commissions and fees. This type of fee and commission is known as a load. Often financial planners who are licensed insurance advisers sell these policies. Usually, they charge clients a fixed fee.
  • Get quotes from various companies.  Prices vary by company.
  • Make your own comparisons.  Make sure the policies you compare offer similar levels of coverage. A cheaper policy may have fewer features, or provide a smaller death benefit. A more expensive policy may be a better value when you factor in the amount of the death benefit per dollar collected. Don't choose a policy based solely on price.
  • Use your free trial period.  Policies in Texas provide you with a free-look period of at least 10 to 20 days. During this time, you can cancel the policy for any reason and receive a full refund. Use this time to make sure the coverage is right for you.
  • Check the information your agent provides you. Agents often use tables to show you how the cash value of a policy can grow. These tables are generally projections and should never be taken as a promise of policy performance. You could earn less than the projection. Ask for a history of the current growth in cash values.
  • Be alert for any illegal activity. Agents may not offer you a gift or a discount on an investment or loan to encourage you to buy life insurance. If you think an agent has made you an inappropriate offer, call our Consumer Help Line.

What happens if I want to replace my policy with a new one?

You should review your life insurance policy every few years to make sure it still meets your needs. However, replacing a policy with a new one is not always a good idea. Before replacing a policy, consider the following:

  • New policies generally take longer to accumulate cash values ​​and pay dividends.
  • The two-year trial period starts with the new policy.
  • If switching to a new policy means you take an early withdrawal from a permanent life policy, surrender charges could reduce your cash value.
  • You will probably have to answer questions about your health or have another medical exam.

It is illegal for an agent to replace a policy just so the agent can get a new commission. If you think an agent has improperly replaced your policy or persuaded you to replace it, file a complaint with us.

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