The Complete Guide to Life Insurance Payouts in 2024

average life insurance payout

If you have a life insurance policy, you may have some questions about the death benefit or payout beneficiaries will receive after you pass away. The average life insurance payout in 2024 is $168,000 and is insurance companies typically pay claims within 14-60 days of a claim’s submission. However, various factors can impact the payout amount and timeline for payment. We’ll discuss common questions with insights from industry experts to give you a better understanding of life insurance payouts.

What is a life insurance payout?

A life insurance payout is the money paid out to beneficiaries after the death of the policyholder. It’s also known as the death benefit, and it includes the face amount of the policy and additional add-ons or riders the policyholder agreed to in their life insurance contract. Payouts are generally tax-free, and provided by insurance companies into the bank accounts of beneficiaries.

How do life insurance payouts work?

The life insurance payout process is relatively simple and has three steps:

1. File a claim

When the policyholder dies, beneficiaries will need to file a claim with the life insurance company. Each insurer has their own procedures, but the process typically requires submitting a death certificate and filling out additional paperwork. There’s generally no deadline for submitting a claim, but it’s  recommended to do it soon after the policyholder’s death. Once a claim has been submitted, the insurer will review the claim within a period set by your state — typically 30-60 days.

2. Claim review

During the insurance company’s review of a claim, they’ll check the death certificate, submitted paperwork, and policy details. Insurers will look for things that may give them cause to contest or deny the claim such as fraudulent information, foul play, or clauses that may invalidate the policy.

3. Payout

If there are no issues with the claim, the insurance company will typically pay it out within 14-16 days. The beneficiaries can then choose how they’d like to be paid out, and these choices can impact how long it takes for payment. For example, a lump-sum payment to a single person will be faster than setting up an annuity to distribute the payout to several beneficiaries over a prolonged period of time.

Types of life insurance payouts

Beneficiaries can choose how they’d like to receive a life insurance payout, and there are several options:
  • Lump-sum: A lump-sum payment provides the entire payout at once to the beneficiary’s bank account. It’s the most common payout option, and is also the fastest and easiest. 
  • Installments: Installment payouts are plans that pay beneficiaries on a fixed schedule such as monthly, quarterly, or annually. This option is also sometimes called “specific income” payouts because beneficiaries can choose the specific amount and frequency of their payouts.
  • Annuity: An annuity splits the death benefit into payments that are distributed to beneficiaries over the rest of their lives. The amount is based on the death benefit and age of the beneficiaries. This option is used to provide a guaranteed income source and prevent the beneficiaries from spending all the money at once.
  • Retained asset: A retained asset account operates like a bank account for the life insurance policy’s death benefit. It will grow interest over time and beneficiaries can write checks to use the money.

What is the average life insurance payout?

The average life insurance payout is $189,000 according to data from The American Council of Life Insurers (ACLI), and in 2022 Triple-I reported life insurance benefits and claims totaled $797.7 billion. However, your policy payout may be different which is why it’s a good idea to discuss this with beneficiaries so they can know what to expect.

Are life insurance to payouts taxable?

In most cases, life insurance payouts to beneficiaries are not treated as taxable income. Tax may be applicable if you choose a payout option that earns interest such as a retained asset account, and you’d need to pay taxes on interest earned.

How long does it take for life insurance to pay out?

Life insurance companies will usually pay out a life insurance policy within 14-60 days after receiving a death claim from beneficiaries. 

Factors that can delay a life insurance payout

A life insurance payout may be delayed for any of the following reasons:

  • Missing information: Withholding a death certificate and refusing to fill out claim forms in full will delay payment because the insurer won’t have all the details they need to review the claim.
  • Incorrect information: Submitting incorrect information, intentionally or unintentionally, can prolong the payout process. Insurers will also check for incorrect information during the application for the policy and if found, the policy may be voided and claims will be denied.
  • Payout method: Some payout options are faster and easier than others, so the method you choose to be paid can delay payment to beneficiaries. A lump-sum payment will be the fastest, while methods that require setting up accounts like retained asset or annuities will take longer. Some methods specifically delay payouts over several months or years.
  • Number of beneficiaries: Payouts involving multiple beneficiaries are more complex and take longer than for cases with only a single beneficiary.
  • The policy’s age: Most life insurance policies have a contestability period of two years after the policy was purchased, and claims made within this period will be investigated by the insurer which can delay payment. This is done to prevent fraud for recently purchased policies.
  • State laws: Life insurance is regulated at the state level, and as a result, state policies can impact the time it takes for a payout. For example, states may have different contestability periods and estate laws.
  • Illegal activity: Payouts can be contested if the policyholder died while performing an illegal activity.
  • Cause of death: Life insurance payouts can be delayed or contested if the cause of death isn’t declared natural, such as situations involving a murder or suicide.

Get life insurance payout information from Harbor Life Settlements

While the average life insurance payout provides a baseline for beneficiaries to get an idea on their own, it’s best to discuss the process and your policy details with them so they can know what to expect and how to prepare. By talking with them, they’ll be better equipped to file a claim and get paid sooner.

If you’re looking into options for getting money out of your policy, you can contact us to speak with our life insurance experts. They’ll answer questions about life insurance payouts including options for getting a payout prior to death if you need money right away. Contact us for any questions you have.

Lucas Siegel

Lucas Siegel

Lucas Siegel is the founder and CEO of Harbor Life Settlements, a life settlement company that is dedicated to helping seniors and the terminally ill sell their life insurance policies, and Harbor Life Brokerage, a life settlement broker that helps policyholders receive the maximum cash value for their policy. He is an expert in the the life and viatical settlement industry, and has been featured in reputable publications such as ThinkAdvisor, WealthManagement, and Investment News.

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