The death of a life insurance policy owner would give birth to the start of several legal procedures. These procedures are set to protect the minor children that he has left behind, protect all of his assets, settle government taxes, settle any other debt that is being owed, and ensure that properties are properly distributed according to the deceased person’s wishes. All of these are set to tell you what happens when the owner of a life insurance policy dies.
If a deceased person has a life insurance policy, he must have named a beneficiary that his assets and money would be passed onto. The passage of assets and money to the named beneficiary of a life insurance policy is usually done without delay, done privately, and it also has the normal cost you would find in any estate settlement case. They are also not associated with any tax payments, and one advantage of life insurance policies is that they are free from challenges caused by disgruntled heirs and creditors.
What Happens When The Owner Of A Life Insurance Policy Dies
In some cases, an insured person might not name a beneficiary, or in another case, the named beneficiary might pass away before the insured person. The policy would pass under the will, and every advantage found in the last paragraph of the becomes negated, excluding the part relating to income tax. Here is something you should know if someone with a life insurance policy dies, then the insurance company must be notified so the claims process can begin immediately.
There is usually a lump sum death benefit payable amount attached to it in most life insurance policies. However, there are certain circumstances when someone who has died would have no death benefit payable in his policy;
- Policies that pay on sickness and not on death
- In some policies, such as second death policies, once both lives are assured, the death benefit becomes payable.
- At the policyholder’s death, but while life assured is still living, the policy can go on.
The inheritances of a life insurance policy go directly to the beneficiary who has been named on the policy by the insured person or policyholder. People don’t know that inheriting life insurance policies would bring about payment of tax alongside other consequences. Still, in some cases, they occasionally happen, especially when the company refused to pay everything out. Sending the original life insurance policy and an original death certificate is the only way to collect death insurance.
The company would send the money to you directly, but insurers are always faced with beneficiaries not knowing that they are entitled to death benefits. In other cases, a life insurance policy might have more than one beneficiary, so if this is the case, the money gets divided among the beneficiaries. If a beneficiary dies before the insured person dies, then the money he is meant to get would pass directly to any other beneficiary or all other beneficiaries on the insurance policy.
If the insurance policy has no other beneficiaries, the money will move directly to the deceased estate. There is also a possibility that an insurer might not want to pay out death benefits if a life insurance policyholder passes away. According to law, insurance companies can take up to two years when carrying out investigations and denying claims because the policy terms have been violated one way or the other. If the deceased ended up committing suicide, then the insurance company will also not pay out any money.
They can also refuse to pay out the money if the insured person engages in criminal activities that contributed to his death, smoked regularly, or died when committing a crime. The truth is all of these conditions are spelled out clearly in terms of the life insurance policy, but sometimes, health issues can be a bit tricky. For example, maybe when the deceased bought the life insurance policy, he wasn’t a smoker but adopted the lifestyle later on. Furthermore, if you are a beneficiary, then you don’t have to pay income tax.
However, any interest you get to earn from the money received from a life insurance policy is taxable. This is also possible if you do not receive the money in a lump sum but chose to collect them through installments over a certain period of time.