For Consumers

What is life insurance?

Life insurance is a contract between the policyholder and a life insurance company. When the policyholder passes away, the insurance company promises to pay the policyholder’s designated beneficiaries a sum of money.

When is the best time to buy life insurance?

In general, life insurance is cheaper when you're young. It gets more expensive as you age. Your health history and life choices, such as smoking, play a key role in increasing the cost of your policy. Shop around and compare companies for the best rate. 

Life insurance is a long-term commitment. It's usually not in your best interest to move from company to company. Before you change policies, check if there is a penalty for canceling your current policy before its maturity date. Also, your insurance company may charge you a surrender fee if your policy has a cash value.

Reasons life insurance companies can't turn you down

Life insurers can't refuse coverage based on your:

  • Gender
  • Marital status
  • Race
  • National origin
  • Living organ donor status

The Living Donor Act prohibits insurance companies from declining or limiting coverage because you're a living organ donor.

If a company denies you life insurance coverage for other reasons, shop around. Companies use different methods and factors to decide who they'll insure. 

What you should know about filing a life insurance claim

If you’re listed as a beneficiary on someone’s life insurance policy, you should contact the policyholder’s insurer or agent and notify them of the death. The insurer will then start the claims process. If there’s more than one beneficiary, each person needs to complete a claim form. You’ll need to submit a copy of the death certificate with your claim. Be sure to keep copies of all your documents and follow the policy’s claims process for a quick payout. 

What you can expect after filing a claim

To ensure prompt settlements, the insurer must pay you no less than 8% interest starting from the date of death. An additional 3% is payable on claims it doesn't settle within 90 days of when you provided proof of death.

When the claim is paid, an insurer sets up an interest-bearing account in the beneficiary's name called a Retained Asset Account (RAA). This account works like a checking account. Typically, the insurer will issue the beneficiary a checkbook. You have the following payout options with your retained asset account:

  • Single, lump-sum payment: You can write a check for the full amount and take your payout as one, lump-sum payment.
  • Installment payout: You can choose a fixed monthly, quarterly or annual payment for a set period of time or until the account runs out.
  • Interest-only payout: You can choose to get paid interest from the account on a monthly, quarterly or annual basis. When you die, the money in the account can be passed on to your beneficiaries.

Life insurance contestability period

If you file a claim during the first two years of the policy, the insurance company will conduct an investigation. This is to find out if the policyholder left out important information from their original application, such as a recent cancer diagnosis. If they did, the company will likely deny the claim, regardless of the policyholder's intent.H3: Reasons a claim can be denied

Read your policy carefully. A life insurance policy can include exclusions if the policyholder's death occurs due to:

  • War (declared or undeclared)
  • Military service or service in civilian forces
  • Suicide within two years from the policy issue date
  • An airplane accident (per conditions specified in your policy)