Wills and trusts get a lot of attention in the movies when it comes to inheritances, but in real life, life insurance often is the source of the biggest cash benefit to families and loved ones. And who gets that money usually has absolutely NOTHING to do with either a Will or a trust, instead, it is the policy's beneficiaries who will receive that death benefit.

When someone purchases a life insurance policy, they have to name primary and secondary beneficiaries.  The primary beneficiary receives the death benefit if they survive the insured party; the secondary beneficiaries will receive that benefit only if the primary beneficiary does not survive the insured party.

In order to claim these benefits you'll need to know the following things:

  • Whether the decedent owned any life insurance
  • Who the beneficiaries are for those policies
  • What kind of policy it is
  • How to make a claim for the benefits

Read on to find out how to do each of these four things.

For example, if a husband, Sam, names his wife, Lani, as the primary beneficiary of his $1 million policy, and then his three adult children, in equal shares, as the secondary beneficiaries of that policy,

when Sam dies, Lani will receive that $1 million if she survives Sam (even by just a few minutes or days). Sam's three kids will receive nothing from that policy unless their mother, Lani, had died before Sam did.

Finding Out if a Person Owned Life Insurance

Your first step is finding out if a person owns any life insurance. Sometimes this is obvious because a person leaves you their life insurance contract number and directions on how to make a claim. But often, it's not nearly that straight forward, and some detective work is required.  Over the course of a lifetime, people tend to accumulate policies that they may have purchased during their time in military service, as a result of a job, or because they accepted a credit card. Some companies claim that as many as 25% of all life insurance policies that are issued are never claimed.

Here are a few ways to find out whether the decedent owned any life insurance policies:

  • Ask their last employer's HR department.
  • Look out for bills for insurance premiums.
  • Check bank records for monthly automatic withdrawals to pay premiums, or to companies with names containing words like "mutual" or "national" or "colonial".

If the decedent was a veteran, check the Department of Veteran's Affairs website to see if they have a military policy.

You can hire private companies to help you send letters to over 400 life insurance companies for about $100, which would be a pretty good investment if you think that there are policies out there, but aren't sure where to look. Click here for a link to L-Life, a company that specializes in helping people find lost policies.

If you're a devoted DIY type, you can try contacting each state's deparment of insurance to get a list of the companies that offer life insurance in each state, and then write to those companies. Click here for a list of links to each state's insurance regulation department.

Figuring Out Who is the Beneficiary

The company that has underwritten the life insurance policy will know who the beneficiaries of a policy are, if you don't. If a person is named, that's the only person who can claim the policy's death benefit. If a trust is named, then it's up to the Trustee of that trust to contact the company and initiate the claims process on behalf of the trust's beneficiaries. If no one was named, or if the named beneficiaries did not survive the insured, then, usually, the estate is considered to be the beneficiary. (Actually, the default beneficiary if no one is named by the policyholder is up to the company. It may be a surviving spouse or surviving children, but most often, it's just the estate of the deceased.)

If the estate is the beneficiary, the estate is going to have to open a probate proceeding and an executor or personal representative must be appointed by the court. Click here to read about Michigan's probate process and requirements.

Filing a Claim for Life Insurance

After you've found a life insurance policy, identified what type of policy is, determined if there's an available death benefit and determined who the beneficiaries are, your next step is to file a claim for that benefit.

Your first step is to contact the company directly to find out what they need. Generally, they'll need a certified copy of the death certificate and the policy number (and sometimes the original policy, but not always). The beneficiaries will also need to fill out that company's claim form.  If there are multiple beneficiaries, each one will have to fill out a separate claim form. Click here for information on how to order additional certified death certificates if you're all out.

Although the claims process can seem daunting, the good news is that life insurance companies have entire departments staffed with people who do nothing but process claims all day long: these folks tend to be helpful, thoughtful, sympathetic, and happy to guide beneficiaries through the process.

When you get to actually filing the claim form, you'll have to decide how to receive the benefit. The life insurance company would prefer that you let them keep it, and invest it for you, rather than taking it out as a lump sum. But here's the thing, as a general rule: that's in their best interests, not yours. 

While it's a great idea to invest that lump sum somewhere, so that you don't just spend it all at once, the question you need to ask yourself is where are you likely to get the best return? So, before you decide whether to take the money and run, or leave it and invest it with the company that's currently holding it, do your research.

Find out what kinds of fees that company is going to charge you; the expected rate of return on that investment, and what happens if the returns fall below that expected rate. Also, ask about flexibility--can you change your mind and withdraw the money in the future if you're not happy with the way the investment is going? Before making any decision about where and how to invest your inheritance, consider getting the advice of a nuetral financial advisor that you trust. In many cases, you'll probably do better by taking the death benefit in a lump sum and investing it yourself.


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