How does life insurance pay out?
A few simple steps to explain how the process works
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
With a pretty high claims success rate, life insurance can be fairly straightforward to pay out with quite a quick turnaround time. It comes in the form of a lump sum payment to your beneficiaries. At first glance the process might seem daunting, but it's really not. Here, we'll talk you through the steps.
How does life insurance pay out?
When someone dies, it's up to their beneficiaries — who are usually loved ones — to contact the insurer. For the claims process to begin, a death certificate needs to be submitted. Once the ball is rolling, the payout process is often completed quite quickly and with a very high payout rate.
How does the claims process work?
The very first step is usually for the beneficiaries to contact the insurer to submit a certified copy of the death certificate. This is as simple as calling the insurance provider to let them know you need to make a claim, and they'll give you all the details and paperwork you need to submit the certificate and start the process.
Some documents that might be handy to have during this process are:
- Death certificate
- Medical records
- Insurance policy details
How long does it take life insurance to pay out?
Dealing with the loss of a loved one is understandably a very stressful time. Insurers recognise this and try to have the claims process run as smoothly and quickly as possible so you can focus on grieving rather than having to deal with the finance side of things.
According to the Australian Prudential Regulation Authority (APRA), 70% of life insurance claims are paid out in less than 2 weeks, and 20% take up to 8 weeks. The other 10% can take between 2 months and 12 months, with 12 months being quite rare.
What percentage of life insurance policies are paid out?
APRA's data as of December 2019 detailed that 97% of life insurance claims are paid out. Life insurance provides peace of mind that loved ones will be financially covered if you were to die and this high payout rate reinforces how worthwhile it can be. A 97% payout rate is much higher than claims for other types of personal insurance — such as TPD and trauma — due to the straightforward nature of assessing a death. Illnesses and injuries need to meet the definitions and required criteria outlined in the PDS before a payout occurs. You're normally eligible for a life insurance payout upon death, providing no exclusions apply.
What types of death are not covered by life insurance?
Like all things in life, payouts for life insurance aren't always black and white. There are circumstances where a claim won't be paid — these are called exclusions.
There are two types of exclusions relating to life cover:
- General exclusions. These are the default exclusions that typically apply to every life insured regardless of their life circumstances. Common general exclusions usually include suicide in the first 13 months, recklessness/negligence and criminal activity.
- Specific exclusions. These exclusions are placed on policies on a case-by-case basis depending on the circumstances of the life insured. Specific exclusions often include things such as hazardous jobs and dangerous hobbies. They can even include pre-existing conditions, although this is uncommon among life insurance policies.
Can life insurance be paid out before death?
If you are suffering from a terminal illness, you may be able to have your insurance paid out if you have a terminal illness benefit included in the policy. For this to happen, your medical practitioner needs to state that you don't have much longer to live. Depending on the insurer, you can generally have your insurance paid out if it is documented that you have less than 12 months or 24 months left to live.
To claim under a terminal illness benefit, the process is much the same. You'll simply need to call the insurer and they'll provide you with the paperwork and next steps you need to take.
Compare life insurance policies in Australia
More guides on Finder
How does life insurance work?
All your questions about life insurance answered. Find out how life insurance works and how to get the right cover for you.
Updating Life Insurance Beneficiaries
Read our guide to updating life insurance beneficiaries and making sure your money goes to the right people.
How much life insurance do i need?
Read our guide to calculating your needs when it comes to life insurance.
Life insurance for couples
Applying for a joint policy as a couple has various benefits including discounts on premiums.
Underinsurance in Australia
Guide to underinsurance in Australia.
TPD insurance in super
Find out if TPD insurance in super is right for you.
Standalone vs bundled life insurance
Find out about standalone and bundled life insurance.
How much does trauma insurance cost?
Everything you need to know about the cost of trauma insurance.
How much does egg freezing cost?
Find out more about the costs of egg freezing and how to get cover.
Find out the ins and outs of art insurance and what type of cover is right for you.
Ask an Expert