Life insurance payout: If I die right after buying life insurance, will my family (beneficiaries) still get paid? We answer this question in today’s episode of Q&A Fridays by explaining what a life insurance how beneficiary designation works and the contestability period for life insurance policies.
Video Transcript
Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance agency where you can get life insurance on your terms.
I’m Jeanna and I’m Natasha.
Today’s question:
Will my beneficiaries still receive the full payout if I die right after I buy term life insurance?
Yes, but before we get into the explanation, let’s review some definitions our viewers may not know.
Sure.
Term life insurance is an inexpensive life insurance plan designed to last a set period of time and not your entire life.
And the death benefit is the amount you are insured for and therefore that cash payout your beneficiaries receive if you were to die during that set period of time.
So going back to today’s question, if a parent purchases a $250,000 20-year term life insurance policy after the birth of their child and then dies a month later in a car accident will the life insurance company still pay the death benefit?
Yes, even though the parent has only paid one month’s worth of premiums, the insurance company will still pay the full $250,000. But it won’t pay $250,000 right to the infant.
No. And it’s not recommended to name a minor the beneficiary of a life insurance policy because a life insurance company is not going to pay all that money to a minor child.
What happens is this money would get stuck in the legal system until a court appoints a guardian to manage those funds until that child is a legal adult. This court process is time-consuming and costly.
So who should the parents name as a beneficiary if their children are young?
Well, most parents name the other parent the primary beneficiary however, it’s important to name contingent, or backup, beneficiaries should the primary beneficiary and the insured die at the same time.
The contestability period means is that if you were to buy a life insurance policy and then die within those first two years, the insurance company has the right to investigate whether or not you were completely accurate on your application.
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Okay, so going back to our example, if both parents died in that car crash then the contingent beneficiary will receive the death benefit.
Right.
The other piece of information we should talk about is the contestability period. And this period lasts two years and starts immediately after you buy your term life insurance policy.
And what the contestability period means is that if you were to buy a life insurance policy and then die within those first two years, the insurance company has the right to investigate whether or not you were completely accurate on your application.
For example, if you said on your application that you have never skydived before, but then you die a year later while skydiving, will the insurance company pay the death benefit?
It depends.
If you have never skydived before and then buy a life insurance policy and then later on go skydiving the insurance company can’t fault you for that because you were honest on your application when you said you’ve never skydived.
However, if the insurance company investigates and discovers you’ve been skydiving as a favorite pastime for years, they are not gonna pay that death benefit claim. It doesn’t pay to fool the life insurance company.
Is there anything else our viewers need to know about term life insurance and death benefits?
Well, similar to the two-year contestability period, every life insurance policy in the fine print has a suicide clause. And this clause also lasts about two years. And what this means is that if you were to buy a life insurance policy and commit suicide sometime within those first two years, the insurance company does not need to pay your beneficiaries the death benefit. What happens is that what they would only pay the premiums you’ve paid thus far.
Good to know.
Yeah, and this clause not only protects the insurance company but families as well.
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If you have any questions about life insurance or a life insurance payout, make sure to leave us a comment. And if you have any questions regarding today’s topic, check out this blog: How Do Life Insurance Policy Payouts Work? Otherwise, tune in next week when we discuss what happens if you outlive your term life insurance policy. Bye!
About the writer
Natasha Cornelius
Marketing Content Manager
Natasha is a writer and content editor at Quotacy. She is also co-host of Quotacy’s YouTube series. She can't get enough of life insurance and outside of work is also working toward her Chartered Life Underwriter designation. Connect with her on LinkedIn.
I am planning on adding my husband to my insurance with my job. It is term life with no medical exam. He currently has cancer and is undergoing treatments. If there are no medical questions and he passes after we add him, will they still pay?
Hi Angela, I’m sorry to hear your husband has been diagnosed with cancer. I dearly hope and pray he will respond positively to the treatments.
As far as the group life insurance goes, it really depends on the plan your employer offers. Many group plans would allow for you to add family (spouse, children) on a guaranteed-issue basis for a small amount of coverage, typically $50,000. If this is your plan’s situation, then your husband would be eligible. However, we can’t confirm this without knowing your job’s plan’s details. I advise you to contact your HR department and ask them to ensure it’s an option for you.
Hi, my husband has had a life insurance policy for about 8 months. In the last 3 weeks he was diagnosed with melanoma cancer. He truly did not know anything about it before that. We are still going through all of the testing. He appears in perfect health. If something happened to him 5 years down the road would we get the life insurance? (I’m concerned b/c we have children and his parents live with us as well-I’m only asking so I Do Not have to ask him-I do not want anything to happen to him)
Brandie, I’m sorry to hear about your husband’s cancer diagnosis. Our prayers go out to you and your family in hopes of complete remission.
Is your husband’s policy one he owns? Versus it being through an employer? If so, the insurance company would have reviewed his medical records and perhaps your husband also went through a medical exam. This information, along with your husband’s honest answers on his application, would be enough evidence to show you did not know of the cancer diagnosis and therefore he did not misrepresent himself. The death benefit in this case would still be paid.
Another thing to note is that every life insurance policy has a contestability period. This period is typically the first two years. If the worst should occur and your husband pass away within two years of the policy being activated, the insurance company is allowed to investigate the claim first. This may postpone payment a bit, but again, it should still be paid out pending no fraud is uncovered.
If your husband has any life insurance through an employer, pending he’s still employed with the company at death, this death benefit would also be paid out even if he didn’t have to go through any medical underwriting.
We understand your concerns. Hopefully this has set your mind at ease a bit.
My husband died and the insurance company said it was three months short of the two year period so they can only pay the premiums paid. Also the death was an accident. Is this legal
I’m sorry to hear about the death of your husband, Faye. When you buy life insurance, there is a two year contestability period. If the insured dies within the first two years, the insurance company has the right to investigate the claim to determine if this person misrepresented themselves on their application or attempted to commit fraud. If misrepresentation is found, the insurance company is legally allowed to contest the claim which may allow them to deny or adjust the death benefit payout (depending on the circumstances). Contact your insurance company and ask for an explanation as to why they are not paying the full death benefit.
I’m a healthy 52 year old female with life insurance policy/pension to leave to my fiance. I would like to leave my adult son separate funds. Should I purchase term or whole or just put money in a bank account for my son?
Hi Michele, it sounds like you want to leave an inheritance for your son. Therefore, term life insurance isn’t the best method because it only lasts a specific period of time. Your question would be best answered by a financial advisor who can go through your finances with you to give you personalized advice.
My mother-n-law had A WHOLE LIFE INSURANCE policy with A underlying health issue an just passed within 6 mo of the policy whats next(will the policy pay off or return the money paid into the policy)
Rosalyn, your mother-in-law’s health issues won’t affect the policy payout unless she hid this condition from the insurance company when she applied. Because she died within two years of buying the policy, the insurance company may take some time to investigate her death to ensure she did not misrepresent herself on her application. They will pay the death benefit after their investigation if she was honest on her application.
I have a question if I buy a life insurance and at the time I’m diabetic and maybe 3 years from the time I buy my insurance I die from being diabetic or have a stroke or heart attach or get sick and diecwill my children collect my insurance
Yes, the insurance company will still pay out. And just FYI, as a diabetic, you’ll pay higher premiums than someone who is not a diabetic.
If you buy a permanent life insurance policy, the death benefit will be paid out when you die, even if it’s one day after buying the policy. If you buy a term life insurance policy, the death benefit will pay out if you die with the term, even if it’s one day after buying the policy.
If a person dies after 2 years of lifer insurance policy then the company will not investigate ?
An insurance company can still void a policy after the contestability period is over if deliberate fraud is proven.
I’m confused about whole life and term life I don’t know which one to buy. Do both payout right away?
Hi Liz, it doesn’t matter if you have term or whole life – if you die while either policy is active, the insurance company will send the beneficiaries the death benefit check a few business days after receiving the insurance claim form and copy of death certificate. The difference is that term life only provides coverage for a specific amount of time (typically 10, 20, 30, or 40 years) while whole life insurance provides coverage your entire lifetime. In addition, if you die within the first two years after first buying the policy, the insurance company has a right to investigate the claim before paying the death benefit.
My aunt purchase insurance almost 2 yrs ago and died last week from stroke will her insurance company pay her beneficiary the whole amount or only what was paid
Angela, I’m sorry to hear about the loss of your aunt. If her policy was active, it will pay out the death benefit not just the premiums paid. Because it’s within the two year contestability period, the insurance company may take some time to investigate the claim first to ensure she wasn’t misrepresenting anything on her application.
If you sign up for life insurance and make a few payments and then stop paying it for whatever reason. What happens to that money/benefit? Are you able to get that money back? Or restart up the policy again? Or is it just gone and there’s nothing there and nothing you can do with or for it..?
Brandy, life insurance policies have a grace period. This period is typically 30 days. If your premium due date is May 28, you need to pay the premium within 30 days or the insurance company can terminate your policy. You do not receive a refund. Reinstatement may be an option. This blog https://www.quotacy.com/cant-pay-term-life-insurance-premiums/ will answer your questions in more detail.
Hi I have a question. If my mom purchased a life insurance policy from one of those valupack adds that come in the mail. Anyways, she purchases a policy mails out the paperwork, premium payment etc and a few days later she passes away (she died in her sleep from having a seizure) But clearly the date it was post marked etc is before she died. Would the policy still be in effect? Would they still pay out the benefit to the beneficiary?
Brandy, once an insurance company approves a policy and the policyowner pays their initial premium, they are 100% covered. If the policyowner dies a few days later there may be an investigation by the insurance company to make sure no fraud was in play, but as long as your mother was honest and the insurance company was legitimate (not sure which company you’re referring to in the valupack) the death benefit will pay out.
My beneficiary is from the Philippines, If. Something happened to me, how can they claim the cash benefits?
Marie, give your beneficiary your policy information and your agent’s contact information for safe keeping. They’ll need to contact the insurance company, obtain a copy of your death certificate, and complete a claims form.
If I will buy a life insurance today, and if something happened the next day , and my beneficiary. Is from abroad, how will they receive the cash benefits?
Marie, even if your beneficiary lives abroad, they can still receive the cash benefits. They will need to mail in a claims form and a copy of your death benefit. The documents need to be in English. It’s also important to note that the payout process may take longer.
Ok so dose your life insurance pay your faimly if you where at fault in the car wreck
Will, you’re asking if you die as a result of a car accident in which it’s determined you were at-fault, will the life insurance company still pay the death benefit? Yes.
If the situation is a suicide by car crash, this may be investigated. Life insurance companies do not pay out the full death benefit amount if the insured commits suicide shortly after buying life insurance. This suicide clause typically lasts a year or two.
How can I find out who got my mother’s insurance money after her accidental drowning. Her friend covered up suicide and claim accidental drowning
Magan, I’m sorry to hear your mother has passed. Do you know for sure that the policy was paid out? The beneficiary has to submit a claim to the insurance company in order to start the death benefit payout process. Unless the death benefit reverted into your mother’s estate and went through probate, the payout of a life insurance death benefit is private. You can call and ask the insurance company if they can give you any information but unless you were an owner or the beneficiary of the policy, they likely won’t be able to tell you anything.
If I die today will my life insurance policy I purchased yesterday pay out to my beneficiaries?
Hi Marcedes,
Yes. If you buy a life insurance policy and die the day after it becomes 100% inforce (activated by the insurance company) the policy will pay out to your beneficiaries. The exception to this is death by suicide within the first two years of owning the policy.
In addition, if death occurs within first two years of the policy being active (the contestability period) the insurance company has a right to investigate the claim before approving it. They can contest paying the benefit if it is discovered that you tried to commit insurance fraud.
If a person takes an insurance policy and dies next day..then her beneficiary can claim whole amount or just the amount paid?
Mona, the beneficiary can claim the full amount. Because the insured died within the first two years of policy activation, however, the insurance company will likely investigate the death/claim before releasing the payout.