How do life insurance payouts work?
A life insurance payout is a one-off tax-free payment that usually takes less than two weeks to be processed.
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A life insurance payout goes to whoever is listed as the beneficiary on the policy which is decided by the person who takes out cover. Luckily, most take less than two weeks to be processed, are tax-free and can pay out more than $1 million.
How does life insurance pay out?
Generally, a life insurance payout is a one-off lump sum payment in the region of $100,000 to $1.5 million. It goes to the person or persons the policyholder (the person who has passed away) has nominated as their beneficiaries – this is usually a family member or loved one.
The beneficiaries of the person who died will generally need to submit a claim to the life insurer. Most people will be aware that they have been listed as the beneficiary – the person who took out the policy should usually inform you. But if you're not made aware, you can make a search on the ASIC unclaimed money register.
How do I receive a life insurance payout?
These are the four main steps to a life insurance payout.
Call the insurer
The insurer's information should be available on the policyholder's certificate of insurance.
Provide them with a death certificate
You'll need to submit a certified copy of the death certificate when you get in touch with the insurer. This is so they can verify that the policyholder has passed away.
File a claim
The insurer will send you a claims form. You'll need to fill that out and provide any information it asks for. For example, the insurance policy details outlining that you are the person the policyholder has listed as their beneficiary. You can usually fill it out and submit online.
Wait for your life insurance payout
Life insurance payouts are usually made to the beneficiary within two weeks of the claim being submitted. If your claim is denied, you can file an internal dispute with your insurer or the Australian Financial Complaints Authority.
🕒 How long does it take life insurance to pay out?
In most cases, a life insurance payout should take less than two weeks to be processed and for the funds to be deposited into your account.
According to the Australian Prudential Regulation Authority (APRA),
- 69% of life insurance claims are paid out in less than 2 weeks
- 21% take between 2 weeks and 2 months
- 7% take between 2 and 6 months
- 2% take between 6 months and 12 months
- Only 1% take longer than 12 months to be processed
Can life insurance pay out before death?
✅ Yes, this is known as a terminal illness benefit and it's included in most policies. 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 or the beneficiaries you've listed simply need to call the insurer and they'll provide you with the paperwork and next steps you need to take.
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