Death and Insurance: What To Do When Someone Dies

We often find ourselves asking what to do when someone dies at some point in our lives.  Even when a person’s death is anticipated because they’re sick or have a terminal condition, no amount of preparation fully emotionally prepares you when someone you know and love actually passes away.

The grieving process is unique to each person but taking care of the many tasks need to be handled can be the start of the healing process.

What do you do after a loved one dies?

Depending on your situation, you may be tempted to handle as many of the details surrounding a person’s death as possible.  Staying busy can be cathartic, but it can also be overwhelming.  You need to take time to mourn the loss.  Also keep in mind that involving others during this difficult time can help them process their own grief as well.

There are several things that will need to be done in the days and weeks following a death, but just getting through the first 24 hours is what you should focus on immediately.  Here are some things that will need to happen:

Contact the authorities

If a person died at home, you will need to contact the police to make sure a medical examiner can legally pronounce the death.  If the person died at home but was receiving hospice, contact the hospice agency.  If a person died at a hospital or nursing facility, those healthcare personnel will deliver the official pronouncement of death.

Consider organ donation

Check the decedent’s driver’s license of advance directive to see if he or she wanted to donate organs or tissue.  Time is of the essence for this after a person passes.

Notify friends and relatives

Begin contacting immediate family members, close friends and other relatives.  Creating a phone tree is something that can be delegated to several people if a large circle of notifications is involved.

Contact an interment provider

Unless plans were already made, you will need to decide upon a funeral home or another provider such as a cremation services, body donation organization or a direct burial service.  If possible, bring together key family members for an early conversation and find out if the deceased had any special requests.  Consider what you can afford, what is realistic and what the deceased wanted.  Help might be available from a number of sources, including a church, a union or a fraternal organization that the deceased belonged to.

If the deceased was a veteran

You may be able to get assistance with a funeral, burial plot and other details.  The military views it as a privilege to lay one of their own to rest.  Contact Veterans Affairs at 1-800-827-1000 or your local veterans’ agency to inquire.

Arrange for care of dependents

If children are involved, a legal guardian will take custody of minors.  If there is no provision for this, then a state social welfare agency may intervene.  Pets will need to be cared for as well.

Important documents

Sometimes they are easy to find.  Sometimes they are not.  You may already know where a will, living trust and advance healthcare directive are, but you will also need several other documents.

• Social Security card
• military discharge papers
• organ/tissue donation authorization
• insurance policies

At some point you will also need deeds and titles to any property, automobile title and registration papers, stock certificates, bank account information, income tax returns, and birth and marriage certificates.

Other things you will need to consider in the days ahead:

• Get duplicate death certificates. You may need a dozen or more copies.
• Notify local Social Security office
• Notify life insurance companies
• Notify the post office
• If the person was still working, look into employment benefits
• Stop health insurance
• Make a list of important bills such as mortgage payments and share the list with the executor or estate administrator
• If you are the executor, consider meeting with a probate attorney
• Notify banks
• Notify credit card companies
• Cancel driver’s license
• Cancel email and website accounts
• Cancel memberships in organizations
• Contact a tax preparer

Depending on your relationship with the deceased, you may need to change several of your own documents as well.  If you are a spouse, most likely you left everything to the person who just died, meaning you’ll need to change the beneficiary designation on your IRA, life insurance policies, pension plans, 401(k) plans, and other investment or retirement plans.

Claiming Life Insurance benefits

Life insurance is a critical part of relieving the financial strain a family may face after a person passes away.  To start the process, beneficiaries or an executor must file a death claim with the insurance company, including the submission of a death certificate.  Many states allow insurers 30 days to review the claim after which time they can pay, ask for additional information or deny the claim.

Policies owned by revocable or irrevocable trusts must also provide a copy of the trust document to the insurance company identifying the owner and the beneficiary.

Assuming everything is in order, insurance companies generally pay within 30 to 60 days after a valid claim has been filed.  Insurance companies are motivated to pay in a timely manner to avoid steep interest charges for delaying the payment of a claim.

Payouts are typically made as a lump sum.  However, in recent years, the insurance industry has also added an installment payment plan as well.  An annuity can give a policyholder the option to select a pre-determined guaranteed income stream that will last between five and 40 years while they are still living.

Life insurance companies have designed policies that allow policyholders to draw against the face value of the policy in the event of a terminal, chronic or critical illness. These pre-death policies allow the policyholder to be the beneficiary of their own life insurance policy.  This is known as an accelerated death benefit.

Different types of life insurance coverage

Once you’ve made the decision to purchase life insurance, the next question you must answer is what type of life insurance will best suit your needs.  You have many choices, each with its own benefits and limitations.

• Term life insurance
• Permanent life insurance
• Whole life insurance
• Universal life insurance
• Simplified issue life insurance
• Guaranteed issue life insurance
• Final expense insurance
• Group life insurance

Understanding the value of the policy

For any life insurance policy, the face value of the policy is the stated dollar amount beneficiaries will receive when the insured person dies.  A policy’s face value can be supplemented by additional benefits known as riders that can be added beyond the basic plan coverage.

To determine the full benefit paid out to beneficiaries in the event of the insured’s death, consult the schedule of benefits in the policy.  The face value plus the amount of any riders that are viable constitute the policy’s actual total death benefit.

Along with a person’s age, face value is one of the most important factors in determining the cost of a life insurance policy.  For example, you’ll pay a lot more for a $500,000 face value policy than you will for a $100,000 face value policy.

Reasons that could delay payment of an insurance claim

There are several reasons why the payment of an insurance claim could be delayed:

• No beneficiary was named
• The beneficiary is a minor
• Beneficiaries were not updated after a major life change
• If the insured died within the first one to two years after the policy was issued due to a contestability clause
• Suicide clause
• Death due to criminal activity if the beneficiary is a suspect
• Potential fraud
• Wrong or missing information
• Failing to provide a certified copy of the death certificate and supporting documentation
• The policy was included in a will or a trust
• Only a primary beneficiary was named, and they are deceased

Is a will needed for life insurance?

A will is not necessary for you to claim life insurance benefits because life insurance policies usually pass outside probate.  Life insurance is considered a non-probate asset because the court sees it as a contract between you and the insurance company.

Your life insurance policy beneficiaries may be the same people you listed as beneficiaries in your will, or they may be different people or charities. These beneficiaries receive the proceeds from your life insurance policy so you may wish to list your life insurance policy information in your will to make it easier for your beneficiaries to find the policy.

If you list your estate as the beneficiary of your life insurance policy, the proceeds from the policy will be paid to your estate. Because they belong to your estate, they will go through probate and be distributed according to the instructions in your will.  The drawback to this is that your beneficiaries will have to wait until the estate is probated to receive their share of the proceeds, which could take months.

How do I find out if someone has a life insurance policy on me?

The answer to this is simple: You must sign an application of consent to have a life insurance policy taken out on you.  If you don’t sign it, then there’s no way someone can legally have a life insurance policy on you.

Insurance policy fraud is also rare because in many instances a medical exam and/or a phone interview is required before issuing a policy.

There is also something known as “insurable interest” that comes into play.  Insurance companies like to make sure that the person buying the policy has an insurable interest in the insured person.  This might mean a wife who relies on her husband’s income or an employer who wants to take out a policy on a key person responsible for the success of their company.  It’s rare that a policy is issued unless there is an insurable interest.

If you believe there is a chance that somebody has a life insurance policy on you, you can run a search with the Medical Information Bureau (MIB) for $75.

The difference between term life insurance and accidental death and dismemberment

They are two very different types of policies. Knowing the difference is crucial to buying the right coverage for your needs.

Term life pays out whether a death is due to an accident, illness or natural causes. The only exception is suicide.  With term insurance, you choose the amount and the length of time (typically 10 to 30 years) you want coverage.  If you die after the term ends, there is no payout.

Accidental death and dismemberment (AD&D) pays only if a death is accidental or you suffer a severe injury.  Sometimes it is offered as a rider on a life insurance policy.  Generally, for a payout to occur, you must lose one or more body parts, your sight, your hearing or your ability to speak.  The amount that you are paid corresponds to the severity of the injury.  The full payout only takes place upon death.

To collect on an AD&D policy, it must be proved that a death or injury was directly caused by the accident or occurred within a certain time frame after the accident, usually three months.  Deaths from a drug overdose, drunk driving by the insured person, war, complications from surgery, mental illness, suicide and certain other circumstances likely won’t be covered.

What happens when someone dies without life insurance

Unfortunately, dying costs money.  And when you die without the safety net of life insurance, you leave someone else footing the bill for your final expenses.

The cost for a funeral can be between $2,500 to $25,000 or more.  Even if you opt for cremation, expenses can still run $1,500 or more.

There are options when someone dies without insurance in place.  Most are less than optimal, but they are available in many cases.  Surviving relatives can consider the following:

• Work with a funeral home on a payment plan.
• Get a loan, either by borrowing from a close relative or putting expenses on a credit card.
• Release the body to the county coroner’s office. The body will be turned over to the government and it will be disposed of either by burial or cremation.  If ashes aren’t retrieved, they will go into a common grave.
• Contact Social Security. There may be some death benefits you can access if the deceased was collecting Social Security prior to passing.
• Contact the deceased person’s church or a community non-profit.
• Ask friends or family to donate small amounts of money in lieu of flowers or other remembrances.

Many people assume that a life insurance payout provides a big cushion for surviving relatives following a person’s death, but the flip side of that is that life insurance often acts to insulate the considerable costs and loss of wages after a person dies instead.

Final expense life insurance is an affordable option

There are a couple of more limited and inexpensive ways you can protect your family from financial burdens after you pass away.

Final expense insurance is a form of life insurance that is used to pay only for funeral services and merchandise after a person dies.  It does not require a medical exam and in some cases, acceptance is guaranteed after a brief health questionnaire is answered.  Some polices require that you pay premiums for two years before coverage kicks in.  It is generally issued for a much smaller amount than life insurance, such as for $5,000 or $10,000, so the premiums are extremely affordable.

Costs covered by this insurance include funeral service, cemetery plot and headstone, casket, funeral procession and other miscellaneous costs.  Some policies also provide expanded coverage for medical bills directly related to end of life as well.

Depending on the life insurance company, a final expense policy may have added features such as child riders, accidental death and dismemberment, or support benefits for surviving loved ones. Not all policies are the same, so make sure you review the policy’s benefits carefully.

Unlike term policies, final expense insurance is whole life insurance and won’t expire if you pay your premiums.

The importance of starting early and planning ahead

When you’re young, life comes at you fast.  There’s a lot to know and a lot of lessons you’ll need to learn along the way.  Information overload can be staggering and sorting out what’s important vs. what’s not can be difficult to say the least.

As hard as it may be, if you’re smart while you’re juggling the immediate challenges in your life, you’ll also take time to think and plan for the long term.  Setting plans in motion now to protect you and your family can make all the difference in the world 10, 20, or 40 years down the road.

Financial planning in general is critical, but many young people don’t always include life insurance as part of that planning process.  But the right policy at the right price should be a priority for a number of reasons.

If you have just gotten married or you’re starting a family, life insurance can be used to replace income lost if you pass away.  Your family is going to depend on you for many years to come and providing for their security is one of the most foundational things you can do for them.

Also consider that student debt topped $1.3 trillion in 2017, with more than two-thirds of all students graduating with some level of debt.  There are currently more than 44 million student loan borrowers in the United States.  If you die before that debt is retired, your estate could still be on the hook for paying that debt.  If your parents co-signed for the loan, they would be liable.  Just because you are single, it does not mean you have no responsibilities.  Death at any age impacts a lot of people around you.

While money is probably going to be tight starting out, also consider that life insurance becomes more expensive as you age.  And in some cases, if you buy life insurance when you’re young and healthy, you may be able to buy additional insurance in the future even if your health changes.

Life insurance can also protect the viability of your business if you pass away.  From a succession planning perspective, life insurance can be used to fund purchase or sale arrangements, or it can provide an inheritance to your heirs who won’t receive a share of the family business when you hand over the reins.

You might also think about key person insurance which is often purchased to replace income needed by the business due to the untimely death of one of the primary revenue generators. Life insurance can also be offered as part of your overall benefits package to attract and retain talented employees.