When the owner of a life insurance policy dies, the policy's death benefits go to the policy's beneficiaries. Beneficiaries are individuals or entities the policy owner has named in the policy documents.
When this happens, the death benefits are paid by the insurance company directly to the beneficiaries listed in the policy. Depending on the type of policy, it is common for the proceeds to be paid out in a lump sum, but installment payments can also be arranged.
As with any estate-related matter, it is important that you review the beneficiary designations on the policy as soon as possible after the policy owner’s death. Make sure you are familiar with the terms and conditions of the policy and know who the beneficiaries are and what portion of the death benefits they will receive.
If you have questions, you can contact the company who issued the policy or consult with an experienced estate and life insurance attorney. They can provide guidance on best practices and how to navigate the claims process.
In addition to helping with the death claim, an experienced life insurance attorney can also help with any issues you may have if the policy is still in force, such as changing the beneficiary or making sure the policy is correctly funded.
It is also important to consider any tax implications associated with the life insurance policy. If a taxable estate will arise from the policy’s death benefits, the estate will be responsible for any necessary taxes. Consulting an estate planning attorney or a qualified tax advisor can help ensure that the policy's death benefits will be received by the beneficiaries without added taxes or penalties.
For more information, read our complete guide to what happens when the owner of a life insurance dies.