Life insurance: What happens to my policy when I die?

When you first take out a life insurance policy, you’ll need to select a beneficiary. This is who you want the policy to pay out to when you die, typically a family member, such as your spouse. In the event of your death, they receive a cash lump sum paid by your chosen insurer.

Your beneficiary doesn’t have to be a family member, instead you could choose to leave the money to a charity. You can also have more than one beneficiary if you wish, even someone from outside the family.

Alternatively, the payment can go into your estate, or if you’re looking to avoid an inheritance tax, a trust. Learn more about writing your policy in trust.

How to make a claim

Before your chosen beneficiaries can receive anything, they’ll need to make a claim. In most cases, the policy pays out in around 30 to 60 days after a claim has been made.

Thankfully, the process is usually straightforward:

1. Your beneficiary will need to contact the insurer which you bought the policy from.
2. They will need to complete a claims form, either online or through paperwork.
3. When making a claim, they will need to provide some details, such as your name, policy number/document, cause of death, and their relationship with you.

How is the payout made?

Life insurance pays out in a number of different ways, depending on the policy you have and how much is paid into it.

For example, decreasing term life insurance (typically used to cover a mortgage) works so that the payout decreases over time. Therefore, there is no guarantee on how big or small the eventual payment will be.

Whereas policies like whole life insurance provide a fixed lump sum – meaning the value of your policy stays the same.

In most cases, the policy will pay out a fixed amount in full to your beneficiaries. But you can also choose for it to pay out through an annuity, which will pay out a fixed amount each year for as long as you are alive.

Can a life insurance claim be denied?

There are a number of reasons a life insurance claim can be denied, such as:

• Failing to disclose information – If you didn’t tell the insurer about any existing medical conditions when applying for the policy, then they may not be able to pay out. To avoid this, be completely honest when completing your application. 
• Failing to pay your premium payments – If you don’t keep up with your monthly premiums, this could result in the policy being cancelled.
• Cause of death not covered by your policy – Not all deaths are covered under life insurance. This can often include death from drug and alcohol abuse, self-inflicted injuries (within the 12 month waiting period), or gross 
• negligence or reckless activity.

If you think your claim might be rejected, you should speak to your insurer straight away. They’ll be able to advise whether your claim is valid and what steps you can take to ensure it’s successful.

The next steps…

Part of owning life insurance is about relaxing, knowing that your family is protected should the worst happen. However, it’s still important to make sure you update your insurer of any big changes to your situation. For example, if you get married, change jobs or move house.