How do life insurance payouts work?

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) December 2021 insights:

• 71% of life insurance claims are paid out in less than 2 weeks
• 20% take between 2 weeks and 2 months
• 7% take between 2 and 6 months
• 1% 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.

Did you know?

On top of your life insurance pay out, you might be able to get early access to your superannuation balance if you've been diagnosed with a terminal illness.

Compare life insurance policies in Australia

Name	Product	Maximum Cover	Maximum Entry Age	Terminal Illness Benefit	Claims Acceptance Rate	Average Claim Time	Sum Insured
NobleOak Life Insurance Finder Award		$25,000,000	74	$25,000,000	96.90%	1.1 months	$24,483 million	Our verdict: Finder Life Insurance Award winner for the last 5 years in a row. Good value for money, simple application process and a high claims acceptance rate. ⭐ Current offer: Get one month free for a limited time - apply by 21 December 2023. Offer T&Cs on insurer website apply.	Get Quote View details	Compare	loading Fetching your data...
TAL Accelerated Protection Life Insurance Finder AwardBonus		No set limit	73	Not stated	Data not available	1 months	$249,285 million	Our verdict: One of Australia's leading life insurers. Automatically includes child critical illness cover. Plus, it comes with a level premium option (e.g. costs remain similar as you get older). ⭐ Current offer: Get up to 15% off your TAL Life, Trauma or TPD insurance policy for life - if you have a Body Mass Index (BMI) between 19 and 28 at the time of your application. Offer T&Cs on insurer website apply.	Get Quote View details	Compare	loading Fetching your data...
Medibank Life Insurance		$2,500,000	70	$2,500,000	Data not available	Data not available	Data not available	Our verdict: Medibank offers a higher payout limit ($2.5 million) than 15 other providers. Get a 10% discount if you're already a Medibank Health Insurance member.	Get Quote View details	Compare	loading Fetching your data...
ahm Life Insurance		$1,500,000	55	$1,500,000	Data not available	Data not available	Data not available	Our verdict: ahm offers a simple application process. You can be approved online or over the phone. There are no medical or blood tests required.	Get Quote View details	Compare	loading Fetching your data...
HCF Life Protect Insurance		$1,500,000	65	$1,500,000	Data not available	Data not available	Data not available	Our verdict: Similar cover to other insurers ($1.5 million). A good discount for HCF members of 10% and an easy initial quote process. ⭐ Current offer: Eligible HCF Members receive 10% premium discount and HCF Thank You rewards.	View details	Compare	loading Fetching your data...
RAC Life Insurance Bonus		$25,000,000	74	$25,000,000	96.90%	1.1 months	$24,483 million	Our verdict: RAC’s maximum death cover limit of $25 million is one of the highest limits you’ll find, including $5 million in TPD insurance. You can get an online quote, but you’ll need to call RAC to get trauma cover. Benefit from added peace of mind with fully underwritten insurance.	Get Quote View details	Compare	loading Fetching your data...
Real Family Life Cover Bonus		$1,000,000	64	$1,000,000	88.90%	2.4 months	$53,238 million	Our verdict: The application is simple; it can be done with 1 phone call and there are no medical exams. But households with larger debts may need more than a $1 million payout. ⭐ Current offer: Get back 10% of the premiums you’ve paid after 1 year.	Get Quote View details	Compare	loading Fetching your data...

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FAQs about life insurance payouts

• Do you pay tax on life insurance payouts in Australia?

  No. Life insurance payouts are usually tax free. This means that if you've selected a payout of $1 million, that's exactly how much your beneficiaries will receive.

• How much does life insurance payout?

  How much life insurance pays out is down to the policyholder. When you take out life insurance, you choose how much you want it to payout. For most insurers, you can choose between a $100,000 and $1.5 million life insurance payout. The bigger the payout, the more expensive your premiums are likely to be.

• What types of death will I not receive a life insurance payout for?

  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. You usually won't be covered for death by suicide within the first 13 months of taking out a policy. There are also sometimes specific exclusions placed on policies on a case-by-case basis.

• What should I do with a life insurance payout?

  If you're the beneficiary of a life insurance payout, you have the freedom to use the money as you see fit. Paying off debt, investing it or putting it toward day-to-day expenses are all good ways to use a payout.