When is life insurance paid out?

 

Life insurance can pay out a lump sum or an annuity (in installments) if:

  • You pass away. A benefit will go to your loved ones in the event of your death.
  • You become terminally ill. If you are diagnosed with a terminal illness (you are likely to pass away within 12 months).

Life insurance policies are generally payed out within 30 to 60 days by the insurer. Most states give the insurer a period of 30 days to investigate the claim if need be.

Payouts may be delayed if the cause of death is declared as homicide or if the holder of the policy dies within the first two years of having life insurance — this is the two year contestability clause. This clause gives the insurance company the right to investigate your claim to ensure that you weren’t providing false information in order to get a life insurance policy.