A life insurance policy is a great tool to ensure that your loved ones do not face a financial burden after you pass away and the monthly salary that you brought in is abruptly cut off. A household runs smoothly only when there is adequate cash flow that takes care of day to day food and house expenses, children’s school fees, house rent, EMI, and utility bills.
If you are the sole breadwinner of your family who takes care of these expenses, then a life insurance policy will provide a valuable cushion to your family in the unfortunate circumstance that you pass away. Your nominated beneficiary, who will most likely be your spouse, will need to file a claim with the insurance company who will then carry out the payout after due deliberation.
Before you know the claiming process it is important for you to be aware of a few benefits.
Death benefitThe single, most important role of a life insurance policy is the death benefit. It is the sum assured by the insurance company that is paid to the beneficiary if something unfortunate happens to the insured person. The death benefit, which is mostly paid out within thirty days of the claim, makes sure that the family of the insured is not stuck in a financial rut, and can carry out their day to day expenses.
Tax benefitsAccording to section 80 of the Income Tax Act, up to Rs. 1,50,000 of the total gross income of a person is eligible for tax deduction for certain investments, which includes life insurance. This means that you do not have to pay income tax for the premiums you pay for your insurance provided that they do not exceed Rs. 1, 50,000 per annum.
Cash ValueIn case of a whole life insurance, where your policy will last you your entire lifetime, a part of the premiums paid by you will be saved as the cash value component in a savings account. If you pass away, your beneficiary shall receive this cash value in addition to the life insurance component.
However, if you are in dire need of cash, you also have to option to cancel your life insurance policy, in which case the cash value will be paid out to you in full. You must understand, however, that by cancelling the policy you will be surrendering all the benefits associated with the policy.
Loan over cash valueYet another way to get hold of some cash for emergencies is to take a loan from your insurance company keeping your cash value as collateral.
Peace of mindOnce you sign up for a life insurance policy, your mind will be at ease as far as your family’s future is concerned. You can rest assured that your family’s finances will be taken care of if something were to happen to you.
How does the death benefit claim work?The demise of a loved one is a harrowing ordeal, and running from pillar to post to understand how a life insurance claim is to be carried out can be taxing. Therefore, it is always advisable to understand exactly how a death benefit claim works and the steps involved as soon as someone names you as a beneficiary for their life insurance.
This ensures that you are very clear about the claim process and can carry out the steps as soon it is required, without any confusion.
The first steps toward a hassle-free claim processEven before the need to claim a life insurance, the two parties, the insured person and the beneficiary must have an open and clear communication about the said life insurance policy. The following pointers will help the both of you to be on the same page regarding the minute details of the policy.
- Share policy details: If you are the insured person and have named your spouse as the beneficiary, the first thing to do is to inform them about this. Give them a copy of the life insurance document and ask them to read it. Share with them the type of policy and the sum assured, as well as any exclusions in the policy.
- Share location of policy document : The original policy document is the most vital document when it comes to claiming the death benefit. In many situations, the beneficiary may be unable to locate the original document, leading to problems in the insurance claim settlement and even rejection of the claim. Keep the original policy somewhere safe, preferably a safe that is moisture free and share a key with your beneficiary.
- Keep a file ready : A great idea is to keep your policy document, along with all other documents required for the claim, in a file or folder and keep the entire thing in a safe. That way, when the time comes, the beneficiary only has to pick up the file and submit it to the insurance company, thus saving a lot of time.
Steps for claiming a life insurance death claim
Step 1: Read the policyGo through the policy document, once more. As a beneficiary, you may have read the details of the insurance policy many times, but there is chance that happened many years before and you may have missed a few points. Even before you intimate the insurance company, go through the document and find out whether your current situation is eligible for the life insurance claim.
Read the exclusions list to make sure that the insured person’s demise is not in the exclusion list. Also, it is very important to make sure that the policy is still active and the premiums have been paid regularly. Going through all this will ensure that your claim won’t be rejected for reasons that you should have known, thus saving time and worry.
Step 2: Inform the insurance companyWhen you’re sure that the policy is in order, inform the insurance company of the policy holder’s death as soon as you can. Insurance companies are required to carry out the life insurance claim settlement within 30 days of the claim. So, the more you delay the claim, the more time it will take for the payout.
Step 3: Submit Intimation formAfter you inform the insurance company, you will be required to fill out and submit a claim intimation form to the insurance company. You can do this by visiting the nearest branch of the insurance company or, if the policy was purchased online, logging on to the website and submitting an online form.
Step 4: Assimilate documentsAsk the insurance company for a list of documents required and start collecting them. Retrieve the original policy document from wherever it was safely saved and submit that along with all the documents. Given below is a list of documents that may be required.
- Original policy document
- Death Certificate
- ID proof of beneficiary
- Age proof of the insured person
- Medical certificate
- Cremation certificate
- Hospital records
- Police FIR
- Post mortem report
Step 5: PayoutIf everything is inorder and the insurance company’s investigation rule out any foul play, the beneficiary will receive the sum assured as a lump sum amount within thirty days. If, however, the insurance company finds any discrepancies, they have the right to investigate further for a period of six months before paying the death benefit.
Payout optionsThe terms of every life insurance policy are different, and regarding payout, the insured person can choose how the death benefit is to be paid. Apart from a lump sum amount, the death benefit can also be paid in monthly installments via ‘assured income’ to the beneficiary.
This allows the beneficiary to be more careful with such a significant amount of money, which in some cases might be exhausted quickly if the nominee is not careful with it.
Early death: Usually, the insurance company takes longer and investigates further if there was an ‘early death’ of the insured person, which means that the policyholder died a mere two or three years after signing up for the policy. This is done to rule out foul play.
Non-early death: A non-early death signifies that the policyholder died many years after the policy was signed. This reduces the chances of foul play and insurance companies may carry out the payout quicker.
Therefore, it is very important to be well-versed with the steps involved in the insurance claim process, so that, when the time comes, you can complete the paperwork smoothly and in a hassle-free manner. The above steps are instrumental in making sure that there are no problems in insurance claim accounting and that your death benefit is paid out to you as soon as possible.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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