Life Insurance Beneficiaries and Death Claims

Overview

The death benefit is a financial payout that the surviving family members or friends receive from your life insurance policy after your death. Typically, the insurance company can pay the benefits at once or in installments and it is generally tax free. The amount of life insurance coverage you purchase determines the death benefit that will be paid out to your beneficiary once the insured passes away. The life insurance beneficiaries may be the surviving family members, charities, or friends of the insured. Depending on the life insurance you purchase, the death benefit can be used to pay off the deceased’s debts or for other expenses, such as funeral expenses. If you have a permanent life insurance and you borrow from the policy’s cash value and you do not pay back before your death, it will be removed from the death benefit. However, a higher death benefit can be associated with higher monthly cost of premiums.

When you purchase a term life insurance policy that expires before you die, your beneficiaries will not receive a death benefit unless you purchase another policy that must still be in effect when your life ends. If you want to ensure that your death benefit can be paid out even after you die, you should consider a permanent life insurance policy.

Your death benefit can also be affected by how you die. Likewise, the type of death benefit that you have can determine whether or not it gets paid out:

• All-cause death benefit: A standard life insurance policy will pay out your death benefit regardless of how you die, unless your cause of death is specifically excluded from the policy.
• Accidental death benefit (ADB): This only pays out to the beneficiaries if an accident, such as a car crash, results in the insured's death. You should carefully review your policy to determine if it qualifies for this benefit.
• Accidental death and dismemberment (AD&D): This can provide financial payouts to victims of qualifying accident fatality. These policies can also help people with serious injuries, such as blindness or paralysis.

In addition, a death benefit rider can help you customize your life insurance policy by providing additional financial protection. It can be purchased for an additional fee if certain conditions are met. Typically, you can add the following death benefits riders:

• AD&D and accidental death benefit riders: This can provide you with an additional amount of money (added to the standard death benefit) if a serious accident that meets the requirement occurs. An example would be a life insurance policy with a $1 million death benefit and an accidental death benefit rider of $600,000. You maintain your payments, and you die in a car accident some years into your policy term. If no exclusions apply to your death, your beneficiaries will receive a total death benefit of $1.6 million. If you're a fan of extreme sports such as racing cars, an accidental death benefit or an accidental death and dismemberment rider might be a good option. If you engage in dangerous activities not allowed by your insurance policy, your death benefit might not be paid out.
• An accelerated death benefit rider: Also known as life insurance with living benefits, this can help you get cash advance against your life insurance policy if you are diagnosed with a terminal illness. This type of benefit is commonly used to pay for medical expenses. If you are diagnosed with a terminal illness which may result in death in less than two years, you might be eligible for an accelerated death benefit. This type of financial support could help you with medical expenses like long-term care and treatment.

Your benefit can also vary depending on your eligibility, as well as your ongoing expenses. You can consult a New Jersey-licensed life insurance agent to help you determine the appropriate amount of coverage for your needs and budget.

Use the printable life insurance quote comparison worksheet to help you and your agent to select the best coverage for your needs.

Who Chooses The Beneficiary?

You are solely responsible for choosing the beneficiaries of your life insurance policy. However, choosing individuals or entities with whom you have a relationship is advisable.

How To Choose Beneficiaries for Life Insurance?

A life insurance beneficiary is someone or an entity that receives the entirety of your policy's death benefit when you die. If you die while your life insurance policy is still in force, your surviving beneficiary will receive the death benefit. The choice of your beneficiary is an important step in establishing a life insurance policy. You have many options when choosing a beneficiary, and no rules restrict it. For instance, you can easily change the beneficiary if you get divorced. However, minors are only allowed to receive the death benefit if you have designated a legal guardian or trust as the beneficiary.

Before you choose a beneficiary, you must have a clear understanding of your goals and the people who will be able to implement them. There are a few questions to ask yourself before making a decision.

• Who do you want to help? A cash payout can help ease the financial burden on your loved ones following your death.
• Who can accomplish your financial goals? A partner, family member, or company who shares your vision can help fulfill your wishes.
• How does the purpose of your life insurance align with your estate plan? If you think your estate is complex or will not need immediate cash, it might be a good idea to fold your life insurance into a living trust. This arrangement would allow you to name the trust as the beneficiary of your insurance. You will also have the opportunity to provide instructions on how to share your benefits with your loved ones.

Who Should I Name as My Life Insurance Beneficiary?

Anyone can be named as your policy beneficiaries like a spouse, parent, sibling, adult child, a key employee in your company, business partner, charitable organization, or trust. If you have minor children, make sure that you select an adult guardian who you can trust with your children's financial well-being. You can choose a single beneficiary or a primary beneficiary and one or more contingent beneficiaries. A contingent beneficiary would be eligible to receive death benefits from your life insurance policy if the primary beneficiary dies.

Before you plan on who will benefit from your life insurance, think about the people in your life who will be affected by your passing. You may want to consider a life insurance beneficiary who will honor your wishes and benefit the most from the funds. Here are some steps that will help you choose the right beneficiary:

1. Consider the reason for a life insurance policy by choosing a life insurance policy coverage and beneficiary that help you continue your goals.
2. Know the eligible individuals: Typically, you can name a wide range of people as your life insurance beneficiary, like an individual, company, multiple people, trusts, estate, and charitable organizations. If you have more than one beneficiary, you can decide how much life insurance payout each person will receive. For instance, if you name your spouse as a primary beneficiary, you can allocate up to 50% of the life insurance payout to them, while 30% goes to your child and 20% to a local charity. Some policies limit how many people can be named as beneficiaries. If your policy has a limit, make sure you list the people who will benefit the most.
3. Have alternative beneficiaries: These people can benefit if the primary beneficiary dies. There are two types of beneficiaries in New Jersey: a primary beneficiary and a contingent/secondary. Primary life insurance beneficiaries are usually the first to receive the death benefit when the insured dies. Contingent life insurance beneficiaries are the ones to receive the death benefit if the primary beneficiary dies before the insured.
4. Be specific: When choosing a beneficiary, it is important to be specific about the details that will be required for the benefit of your loved ones. For instance, if you get divorced and remarried, the terms "husband" and "wife" would not be appropriate for a life insurance policy. Instead, you should include full name, address, phone number, social security number, and date of birth.
5. Avoid choosing a minor: If a minor child is named a beneficiary in a life insurance policy, it is best to establish a trust or appoint a guardian. In New Jersey, any person that is at least 15 years old can receive a death benefit as a beneficiary. Per section 17B:24-2 of the New Jersey Revised Statutes, this minor can receive a payment or aggregate payment not exceeding $2,000 in any one calendar year. Likewise, any minor 18 and above can receive an aggregate payment not exceeding $5,000 in any calendar year.

If you don't name a beneficiary for your life insurance policy, your estate will become the surviving beneficiary. This happens when all your beneficiaries pass away, and the proceeds go into estate probate, which involves a lengthy legal process. Typically, your debts will be settled, and your estate will be divided amongst your heirs.

You should specify your beneficiaries on a designation form to be provided by your insurance provider once you have determined who you want to be your beneficiaries. It overrides any estate planning you may have, such as a will. You must be certain that the listed individuals are the ones you want to receive the benefits from. If you have multiple beneficiaries, there are three ways that you can assign a death benefit to your multiple beneficiaries:

• Specific Percentage: You have to name and assign each beneficiary a percentage of the death benefit. For example, if your wife and child are your beneficiaries. Your wife may receive 70% of the payout, and your child would receive 30%. If the wife passes away before you, your child will receive 100% of the payout.
• Per Capita: You have to divide equally across all your named beneficiaries. If you have a wife and four children, each will receive 20% of the benefits.
• Per Stirpes: You must divide the death benefit equally across each family branch. For instance, if you name two of your children as the beneficiaries, and one of them dies before you, 50% will go to the surviving kid, and the family of the deceased second beneficiary will share the remaining 50%.

Although you can name someone a beneficiary, it's important to ensure they have a copy of your insurance policy to enable them to file a claim if they need to.

Who You Should Never Name as Your Beneficiary?

The people you should never name as your beneficiaries are untrusted persons, minors, and disabled persons. Your minor children should not be named as your beneficiaries because they would not be able to legally access your death benefit after your demise until they reach age 18. In this case, the matter is usually settled in the probate court, where an adult is chosen to be in charge of your money until your child is old enough to handle it. Your estate also should not be chosen as your beneficiary because, after your demise, your estate is subject to creditor claims. This means that your death benefits could be used to pay off your outstanding debts.

How To Change Life Insurance Beneficiary?

You can easily change the beneficiary of your life insurance policy by filling out a beneficiary change form without the beneficiary's permission, except if it is an irrevocable designated beneficiary. It will allow your insurance company to make the necessary changes. The following are steps detail how to change beneficiary on life insurance policy:

1. Determine the type of beneficiary to be changed: You have to review the beneficiary you want to change, whether it is an irrevocable or revocable beneficiary. Changing can be very complex if you have an irrevocable beneficiary. This person can not be removed or changed without their consent. If you have an irrevocable beneficiary, you may be unable to name a new beneficiary without their consent. For instance, if you get divorced, you may need your ex-wife's consent to change the terms of your life insurance policy. On the other hand, if you have a revocable beneficiary, you can easily make changes. In most cases, you do not need permission unless the beneficiary is your spouse.
2. Contact your insurance provider: Some life insurance companies allow you to complete the beneficiary change form online. While some insurance companies may require you to submit the relevant beneficiary change form in person at their physical location, by fax, or via mail, it's best to consult with your insurance provider before completing the form. This is because some insurance companies may require a change of beneficiary form signed by a witness. Your insurance agent will be in a better position to guide you through this changing process.
3. Provide specific details: You must provide accurate and adequate details about the new beneficiary. Avoid providing vague information that will not make the beneficiary identifiable when the death benefits are to be paid.
4. Inform the new beneficiary: All your named life insurance beneficiaries should know about your life insurance policy. This ensures that your beneficiary will not have to look for the specific insurance provider to file a claim with when you die.

After major life changes, it is important to reassess your insurance beneficiaries. Doing so can help ensure that the right people are protected when you die. The following are situations where you should consider changing your beneficiaries in New Jersey:

• You have children now and need to include them as beneficiaries under the policy
• Your children are no longer financially dependent on you, and you want to adjust their designated percentage
• You have incurred more debts
• Your named beneficiary dies before you, and you intend to replace them with another beneficiary
• You are newly married and want to add your new spouse to the policy
• You get divorced and need to remove your ex-spouse from the policy as a beneficiary

Changing a beneficiary can be complex, especially when dealing with an irrevocable beneficiary. So if you have more questions on how to change beneficiary on life insurance policy, consult with a New Jersey licensed life insurance agent to guide you through the process. The agent is more knowledgeable and better positioned to advise you on what steps to take.

How To Claim Life Insurance in New Jersey

When buying a life insurance policy, you must make it as easy as possible for the insurance company to identify your beneficiaries. This typically means you need to provide details that can easily identify the beneficiaries in your policy. You may also want to give your policy beneficiaries access to your account so they can check on your premium payments and other details. It gives them access to information that can help them when wondering how to claim life insurance in case of death. It will also prevent a dispute between the insurer and the beneficiary if the coverage was not in place at the time of your death.

Once the insured passes away, your beneficiaries must determine how to claim life insurance benefits and the steps to file a claim. It is also important for the beneficiaries to understand how to file a life insurance claim. Claiming life insurance in New Jersey involves the following steps:

1. Find the insured's life insurance policy documents: The beneficiaries will be required to provide necessary information about the policy, such as its value. If you do not have access to the policy documents, you can use the National Association of Insurance Commissioners' Life Insurance Policy Locator Service to find the insurance provider who sold the policy.
2. Inform the insurance company: After the insured passes away, their surviving family members must notify their insurance company and provide the necessary information to receive the death benefit. The beneficiaries will need to file a claim called a "Request for Benefits" and present the insured's death certificate to the insurance company for validation and processing.
3. Wait for the insurance company to process the claim: After the insurance company confirms the death of the insured, it will then validate the beneficiary's status under the policy. This process usually takes around a couple of weeks or months depending on the insurance company.

How long does it take to get life insurance money? This depends on how quickly the beneficiaries request the death benefit. Nonetheless, life insurance companies in New Jersey must pay out a death benefit within 60 days after receipt of proof of death, and proof of the interest of the beneficiary filing the claim.

Following the submission of a life insurance claim, the life insurance company will review it and the policy terms. If the person has not made payments on their policy, or their death was caused by a cause that is excluded in the policy, it may be grounds for denial. Some of these include acts of war, suicide, and hobbies that are considered life-threatening. The insurer will look into the claim and determine whether the person lied about their situation while purchasing the policy. If they did, the insurance company might reduce or deny the benefit. Also, during the first two to three years of a life insurance policy's effective date, the insurance company has a contestability period which may require investigation for fraud. If the claim is genuine, the insurance company will take steps to pay out the death benefit.

How much does life insurance pay out?

Life insurance providers typically pay the death benefit amount of the insurance contract, minus the used up portion of death benefit and living benefits. It is often recommended that you purchase a life insurance policy that has a death benefit of around seven to ten times of your annual income. For example, if your salary earning is around $70,000, then your death benefit would be around $520,000 to $700,000. Regardless of how much the payout will be, the beneficiaries have the following payout options:

• Annuity: It invests the death benefit in an annuity investment account. Annually, the life insurance company pays a portion of the death benefit and the accumulated interest to the beneficiary.
• Lump sum: One of the most common ways to receive the death benefit is a lump sum. You can either receive the entire amount in check or have it deposited into a bank account.
• Installment: These payments are made in batches over a set period of time. These are not paid out of an investment account.
• Retained asset account: This is a type of checking account that allows people to access their money while also earning interest. It can be attractive for individuals who prefer to receive their money in a lump sum and at the same time, receive interest.

Your New Jersey-licensed life insurance agent is in the best position to guide you on how to file life insurance claim. Insurance agents are knowledgeable and can provide details about what documentation you need to file a claim and how insurance companies handle claims.

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