Life Insurance Beneficiary Rules

A life insurance beneficiary is someone who is legally designated to receive the death benefit of the insurer. When the policyholder dies, beneficiaries receive a sum of money as long as several conditions are met. 

When you get life insurance for yourself, it is up to you to choose a beneficiary. You can decide based on your priorities, but most people tend to make family members the beneficiaries of life insurance policies. Spouses, partners and children are among the most common beneficiaries, but charities can also be chosen for this position.

Life Insurance Beneficiary Rules

Life insurance companies prescribe specific rules for beneficiaries to follow. You can find this information on the website, or you can contact customer support and talk to an agent who will make the rules clearer to you.

In general, it is easy for a beneficiary to receive the death benefit after the passing of the insured. Proof of death is the most important document to be shown to the provider, and it should be sent to the insurance company as soon as possible.

Best Life Insurance Companies

If you haven't picked a provider yet, take a look at the best life insurance providers. The expert team at Benzinga reviewed and analyzed these companies, each of which exceeded the standards.

Wysh

This company is best for people with families. You can get more coverage as you age for low rates. Wysh has been in operation since 2021. 

The company’s goal is to digitalize insurance and make it accessible to everyone. Since it provides an innovative website, you can learn a lot from Wysh tools to calculate and estimate your coverage needs and costs. With a wide range of policies to choose from, you can find the best one for you.

Pros

• Coverage calculator 
• Application in less than 10 minutes
• Future coverage options

Cons

• Limited customer service 
• Short operating history 

Ladder

One of the strongest points of Ladder is the flexibility and freedom it gives to its customers. Combined with low premiums and no hidden fees if you modify or cancel your policy and it can be a great choice for life insurance. 

All you need to get started is to complete an online application. You can get a quote within minutes, and customer support is also willing to assist you. If you are between 20 to 60 years old, Ladder could be a sound choice for you.

Pros

• High coverage limit
• No hidden fees
• Helpful customer service

Cons

• No whole life insurance plans 
• No riders

Transamerica

While many insurance companies have strict limits on age and health, anyone between 18 to 80 can get insured by Transamerica.

Several policies are available, and coverage starts at $25,000. If you are looking for a higher limit, you won't have to switch providers since Transamerica can insure you for up to $10 million. 

Pros

• Lots of policies are available
• No medical exam 
• Educational website 

Cons

• Agent required
• High number of complaints

Northwestern Mutual

Buying life insurance online has never been easier, and Northwestern Mutual offers term life insurance in all 50 states. With superior financial strength and excellent ratings, many people put their trust in this company. It was founded 165 years ago and has been operating continuously ever since. Its strong customer support team is ready to help you find the right policy and answer your questions. The website is chock full of helpful information.

Northwestern Mutual has one of the cheapest term life insurance, and a term policy can be converted to a permanent life insurance plan in the future. However, with no online quote tool, you will need to talk with their agents if you want to find out if you qualify for a policy.

Pros

• Very few registered complaints
• High customer satisfaction
• Good educational content on the website 

Cons

• Requires quote from agent
• No riders in every state

Bestow

Many people agree that Bestow is the best insurer when it comes to term life insurance. With a maximum coverage limit of $1 million, you can ensure a safe and stable future for your family. It sells term life insurance policies to people between the ages of 18 to 60.

The process of buying term life insurance has never been easier, and Bestow has a quick, online application system that does not require you to take a medical exam. 

Pros

• No medical exam 
• Approval in minutes
• Large coverage range

Cons

• Restricted to customers between 18 to 60 years old
• No additional riders

Do Life Insurance Companies Contact Beneficiaries?

As soon as they have been informed about the death of the insured person, insurance companies reach out to the beneficiaries. They know beneficiaries are struggling with stress and grief during this hard time, and agents are usually understanding.

An agent will help with the claim, provide all the information necessary for the process and list clear instructions to follow. Beneficiaries should cooperate and follow these indications as soon as possible.

Why You Should Trust Benzinga

You can rely on Benzinga when it comes to financial advice. The team’s expertise equates to up-to-date information and advice for you as the beneficiary of a life insurance plan.

When it comes to financial matters, it is important to get everything right and avoid mistakes. Benzinga’s team of experts researched life insurance beneficiary actions to present all the information you need right here.

How Does Life Insurance Pay Out?

When the insured person dies, the death benefit payout is activated. It is forwarded to the beneficiaries specified in the contract who receive the payment directly from the life insurance company. This payment is usually not taxable.

Beneficiaries should provide the necessary documents to the provider, which releases the funds after reviewing the claim. There is no restriction on how the money can be spent, and many people use the death benefit to cover funeral expenses and other debts.

Are Life Insurance Proceeds Taxable?

Beneficiaries will not have to pay taxes on the death benefit. This payment is not recognized as gross income, and you don't have to report it. Keep in mind that some policies pay out interest, which is taxable and should be reported.

You can consult with a tax professional or a financial advisor if you are not sure whether or not you have to pay taxes on part of the death benefit. Get in contact with the insurance company if you have questions.

Average Life Insurance Payout

It is difficult to estimate the average life insurance payout as this depends on many factors, including the policy type, coverage amount and the age of the insured. Based on statistics and public information, most people receive between $10,000 and $50,000.

Insurance providers have more information about payouts shown on their websites. While some policies are designed to provide basic financial support in times of need, others offer a larger payout intended for mortgage payments and long-term financial security for the beneficiary.

When Can a Policy Owner Change a Revocable Beneficiary?

A revocable beneficiary can be changed at any time during the active period of this service. As their name implies, revocable beneficiaries can be removed by the owner without the beneficiary’s consent. For this process, a written request is submitted to the insurance company that makes the necessary changes.

As life progresses, wishes and circumstances tend to change. That's why it's good to check the designated beneficiaries on your policies periodically because life events such as marriage or divorce may cause you to want to change them. 

How Long Does it Take for a Beneficiary to Receive Money?

On average, it takes between two weeks to two months for the death benefit to be forwarded to the beneficiaries. That is why it is important to file the claim as soon as possible because delays increase this timeframe. In some cases, the payment can be received in just a few weeks if the process goes smoothly.

Complications and misunderstandings delay this payment. The life insurance provider might request additional information or certain documents that take more time to obtain. Missing paperwork is one of the most common reasons why it takes a long time for the beneficiary to receive the money.

How Long After its Effective Date Will an Individual Life Insurance Policy Become Incontestable?

The incontestability period of an individual life insurance policy lasts for two years on average. During this time, the provider can check the policy's validity based on several factors. In the unfortunate event that the insured dies during this period, the provider still checks the application to make sure that the information is correct.

After two years, the policy becomes secure. When the beneficiary files a claim, there are low chances of denial caused by the information provided in the application. The incontestability clause is common among life insurance providers because it protects them from fraud.

Do You Get a 1099 for Life Insurance Proceeds?

Because it is not taxable income, beneficiaries do not submit or receive a 1099 for life insurance proceeds. The IRS does not consider the death benefit as income, and you won't have to report this payment. 

There are some situations in which the insurance proceeds are taxed. One example includes the situation where the policy is part of an estate, and the estate is subject to taxes. In this case, the death benefit is taxed and a 1099 form is provided. A specialized financial advisor will help you based on the situation you're in. 

What Happens if the Owner of a Life Insurance Policy Dies Before the Insured?

In the unfortunate event that the owner of a life insurance policy dies before the insured, the proceeds are paid out to the secondary beneficiaries. While they are not always required, they should be named in the contract by the insured at the time of application. If there are no secondary beneficiaries, the death benefit is paid out to the insured's estate.

After this procedure, the payout is distributed based on the insured's will. That's why it is important to designate secondary beneficiaries. If you haven't done it yet, you should get in touch with your provider and ask them to modify your policy. 

Factors to Look for

There are a couple of factors to look for when you are choosing a life insurance policy. It is important that both the insured and beneficiaries are familiar with them.

Analyze Your Financial Situation

If you are looking for life insurance, it is recommended to review your financial situation and make plans for the future. Build a foundation for financial knowledge by following Benzinga's updates and informative articles on this topic.

Calculate the Coverage Needs

Companies that provide life insurance have various policies available for their customers. Some of them feature a handy calculator on their website, but you can also apply some simple formulas for figuring out your coverage needs. One of them suggests that you to multiply your yearly income by 10 to get an idea of how much you need in coverage.

Age and Health Condition

Age and health conditions are important factors for life insurance providers that influence the details of your policy. A young and healthy individual pays lower premiums, whereas a retired senior pays far more.