Basics
There are a number of different kinds of life insurance, each with different methods of payouts. Beneficiaries of life insurance policies receive payments according to the rules of the policy when it's purchased. Term life insurance is a simple policy that pays out only while the insurance is in force and the premiums are up-to-date. Premiums can be firmly set or increase at regular renewal periods, report financial advisers at Life Insurance Hub. Many people choose to purchase set premium term life insurance that carries enough of a payout to cover the expense of a funeral and other final expenses incurred by the estate. Term life insurance also is used to cover a loss of income from the primary breadwinner in a family.
Whole life insurance serves more as an investment and remains in force even if the premiums are discontinued, though at a lower rate of payment.
Process
Survivors present a death certificate to the insurance company, which then begins processing the payments described in the policy. Financial consultants at Financial Web report that after insurance companies verify the claim, payment typically is made within days. Most states require life insurance claims be paid within 60 days. There are rarely any negotiations involved in a life insurance payout. The insurance company verifies the death and that it was not a suicide, which is not covered by most policies.
Term
Most term life policies pay out one lump sum to the survivors. Additional instructions may be written into the policy to cover various circumstances. For example, there may be a list of beneficiaries in case the first beneficiary dies at the same time as the primary beneficiary. The payout would then go to the next person on the list. Other payouts may be split between a number of beneficiaries as designated by the policyholder at the time the policy is opened.
Whole Life
Whole life insurance policies provide permanent insurance coverage that accrues a cash value in addition to the final death benefit. Loans can be taken against the policy and repaid with interest. The interest can eventually be used to pay the premiums. At the death of the policyholder, beneficiaries may receive the face value of the policy at the time it was purchased plus the interest. There are other ways to pay beneficiaries through a whole life insurance policy. Policyholders may choose to purchase a limited payment whole life policy that pays the beneficiary a set amount of money each month. The amount of time that the payments are made to the beneficiary is determined at the time of purchase and also will serve to determine the premiums. The policyholder instructs the insurance company to pay for a certain period of time and for a fixed amount. Another way to pay beneficiaries from a whole life insurance policy is to pay them only the interest on the policy for a certain number of years. The final payout on the face value of the policy is paid in full at a predetermined time.
Riders
Riders are additions made to life insurance policies that provide additional income to the beneficiaries in certain conditions. The most popular rider is an accidental death benefit. In case the policyholder dies as a result of a covered accident, the beneficiaries will receive an additional amount of money at the time of death.
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