When you purchase a life insurance policy, you pay monthly premiums in return for benefits. These benefits will be paid out to your beneficiaries once you (the policyholder) pass away. There are many misconceptions when it comes to life insurance and life insurance benefits, and it’s important to clear away the confusion before you discover that your life insurance policy doesn’t cover what you think it should. 
Naming Beneficiaries
First, it’s important to identify your beneficiaries. Beneficiaries are typically family members, though they can be anyone, who receive the benefits of your life insurance policy after you die. You can have multiple beneficiaries or you can have just one. It’s important not to pick someone at random, however. In general, you want to name a beneficiary who would suffer financially from your death. The benefits of life insurance are designed to lessen the financial blow of your passing for those who would otherwise be affected. It’s recommended that you avoid naming minors and those who need government assistance as beneficiaries. If one of your beneficiaries is someone who receives government benefits, providing them with life insurance benefits could render them ineligible for any more government benefits. Be sure to speak with your financial advisor and life insurance agent about who to name as beneficiary on your policy.
Filing a Claim
Since life insurance benefits are only paid after the passing of the policyholder, it is the beneficiary (or beneficiaries) who will file a claim with the insurance agency. Beneficiaries should file a claim as soon as possible following the policyholder’s death in order to receive full benefits. In most cases, insurance companies have 30 days to investigate and consider a claim before either denying or paying benefits. There are certain rare circumstances where a life insurance claim may be denied, such as if the policyholder died by suicide or died within two years of the life insurance policy being purchased. A claim may also be denied if the insurer discovers that certain information was forged or withheld, such as medical issues that were not revealed until after death.
What Life Insurance Covers
Benefits vary under life insurance depending on the situation and the policy. Most life insurance policies offer benefits to cover:
- Funeral expenses including a casket, burial costs, cremation services and more
- Co-signed debts, such as mortgages
- Everyday expenses, such as rent, utilities, groceries and more
- College tuition
- Childcare/dependent care
As discussed earlier, these benefits are tailored for beneficiaries that would suffer great financial loss after the policyholder’s death. Life insurance benefits can compensate a spouse for suddenly paying for both halves of rent or mortgage, as well as childcare if the spouse must return to full-time work after the policyholder’s death.
These benefits may be paid out in a single lump some or in monthly installments, depending on the policy. It may take anywhere from 30 days to 60 days after filing a claim for beneficiaries to receive compensation. This period could be longer if there are complications with the claim.
How Much is a Life Insurance Benefit Payout?
The amount a beneficiary will receive depends on the policyholder and the life insurance policy. Most insurance professionals recommend that you purchase 10 to 12 times your income in life insurance. As such, the benefits your beneficiaries receive depend on your income and how much coverage you purchase.
Every family’s situation is unique. Whenever you’re looking for a life insurance policy, be sure to speak with an insurance expert and a financial professional about how much coverage you and your beneficiaries will need.