Rachel Clark Overview
- Life insurance experts recommend the average death benefit should be 7 to 10 times your salary
- There are two different types of life insurance: term life insurance and whole life insurance
- Filing a life insurance claim is a simple process and the payout shouldn’t take long if you have all the correct documents
While there’s no minimum age requirement to purchase a life insurance policy, it’s usually something to think about as an older adult. When you have financial and familial responsibilities, it’s wise to think about providing for them for the future — especially on the off chance that you pass away unexpectedly or untimely.
One of the biggest questions related to life insurance is, “What is the average life insurance payout?” After your death, your life insurance company pays out a lump sum to your family. But life insurance policies offer a range of coverage, so the type you have will determine the amount paid out in the event of your death.
What is the average life insurance payout?
The average life insurance payout is $168,000. Many life insurance experts recommend buying a policy with a death benefit of seven to 10 times your annual salary. If your salary is $60,000, then the death benefit would be equal to $420,000 to $600,000. But that isn’t necessary for everyone. You can purchase the right amount of life insurance for your individual situation. The life insurance payout can be made to your beneficiaries in several ways.
- Lump-sum: Having your death benefit paid out in a one-time payment is usually the most popular option. The insurance company will wire the money to a bank account, or they will send a check made out in the full amount to your beneficiary.
- Installments: If you don’t want the money paid all at once, you can choose to have the life insurance paid in installments. This will happen over a specified period of time until the amount in the death benefit is reached.
- Annuity: You can choose to have the death benefit put into an investment account if you want the annuity option. If you do this, you will get a portion of the benefit plus some of the interest it earns until the money runs out.
- Retained Asset Account: Basically, a retained asset account is a checking account with cash value that earns interest on the life insurance proceeds.
It’s best to discuss with a financial advisor the best way to handle the life insurance death benefit.
What are the different types of life insurance?
When just starting your research into finding a life insurance plan, you might be surprised to find out there are two main types. The first is term life insurance. This type of insurance is only temporary and lasts for a specified amount of time. Usually, term life is 10 to 30 years. Once the policy expires, you can either renew it or the benefits expire as well. But the cost of renewing a term life insurance policy is more expensive the older that you are. Most people choose a permanent life insurance policy.
Permanent life insurance covers you for your entire life instead of just a term. As the name suggests, it’s permanent and offers policyholders an added tax-free cash value that they can use while they’re still alive. There’s also a guaranteed death benefit paid out to the family upon the policyholder’s death.
What are the benefits of life insurance?
Most life insurance plans offer the same types of benefits, with optional riders — known as add-ons — you can purchase, too. What makes a life insurance policy worth it is the death benefit. The death benefit is a guaranteed lump sum paid to your dependents, or beneficiaries, to cover the loss of your income. It’s tax-free, and your beneficiaries can use it however they like. So, they won’t have to worry about money during such a difficult and emotional time. Typically, people use lump sums for funeral expenses, debts, taxes, college funds, and mortgage payments. There’s also a cash-value component that comes into play with a whole life insurance policy. The cash value grows over the life of the policy at a low-interest rate and can double the amount you put into it.
Another benefit is the younger you are when you purchase a policy, the less expensive the premium tends to be. Also factored into monthly costs are the policyholder’s gender and health. As an example, we’ll look at the monthly average for a 20-year-old male vs. a 50-year-old male. The 20-year-old would only pay an average amount of $19 to $26 a month, while the 50-year-old would pay $71 to $86 a month.
How to File a Life Insurance Claim
In order to get the money from a life insurance death benefit, your beneficiary will need to file a claim with the insurance company. First, they will need to have the death certificate of the policyholder, the policy documents, and the claim form from the insurance company. Next, they will reach out to the insurance company to notify them of the death and submit all of the documents. Although there’s no time frame to file a claim, the sooner your beneficiary does so, the sooner the payout will come. Then, the company will process the claim and determine that everything is as it should be. They will make sure that the policy is still active, the policyholder made payments, and confirm the beneficiary of the insurance policy.
As long as your beneficiary has all the correct documents and is who they say they are, then the process should only take a couple of days.
How long does payout take?
When you die, your beneficiaries might need to access the life insurance money for your final expenses and debts. If the process goes smoothly, the life insurance company can send the death benefit payout in as little as two days. But if there’s a problem with the documents or something else, it can take as many as 60 days. The death benefit could also enter probate and be untouchable for years if all the beneficiaries have predeceased the policyholder.
Will the payout get stuck in probate?
Another fear that you might have in regards to payment of the death benefit is probate court. A person’s estate enters probate after they die. It’s the court’s job to make sure the deceased person’s will is valid and that the executor of the will distributes the assets to the named beneficiaries. Normally, a life insurance payment will skip probate. Yet, if the beneficiaries of the policy have died, then the probate court will decide to whom it goes. The court can even use it to pay off debts and creditors.
The probate process can take six to nine months to finish if everything is up to code. If not, then your beneficiaries might not see the money for two years. That’s why it’s important to keep all of your information updated in the unfortunate event of an untimely passing. That way your loved ones don’t have to worry about paying for expenses they might not be able to afford without it.
