How Life Insurance Payouts Work
In Australia, a life insurance payout is made to the policyholder’s chosen beneficiary upon completing a successful death benefit claim. Fortunately, the process is relatively fast compared with other types of insurance claims (typically two weeks), with many payouts worth more than $1 million.
Critical Considerations for Life Insurance Claims
- Depending on your policy type, the life insurance claim process varies. To be successful, you must adhere to the insurer’s terms and conditions.
- Life insurance policies, trauma insurance, and TPD cover offer lump sum payouts, while income protection provides a monthly payment.
- Your claim will only be accepted if you meet the policy definitions, answer truthfully and disclose all relevant information.
- Your chance of success will increase if you work with the guidance of a qualified and experienced insurance claim lawyer.
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Overview of Life Insurance Payouts
Life insurance payouts are the financial payments to beneficiaries when a policyholder dies. Generally, the kind of insurance policy in place, its level of coverage, and any rider options selected by the policyholder when purchased all impact how much money the beneficiary receives.
In most cases, a life insurance payment replaces or supplements the income lost due to the insured person’s demise. These funds help cover funeral and burial costs and other related expenses.
Life Insurance Payouts Defined
A life insurance payout is the sum of money given to the named beneficiaries following the policyholder’s death, typically the deceased’s spouse, children, or other close relatives. They are the beneficiaries in the event of a successful claim.
When a life insurance policyholder dies, their insurer assesses the claim and investigates the circumstances of their demise. Once approved, the insurance company will pay a death benefit to the policy beneficiaries.
Common Types of Life Insurance Policies
Life insurance is a type of financial protection that makes a lump sum payment to a named beneficiary in the event of the insured person’s passing. However, several common types of policies have a wide range of coverage options to satisfy various needs and objectives.
Term Life Insurance
Term life insurance offers life cover for a specific period, like 10, 20, or 30 years, and is typically the least expensive option.
Whole Life Insurance
Whole life insurance is a permanent policy that provides death benefit protection for as long as someone pays the premiums.
Universal Life Insurance
Universal Life Insurance is a permanent death cover offering more flexibility than whole life insurance (generally costs less), allowing the insured to adjust the cash value and decrease premium payments over time.
Variable Life Insurance
Variable life insurance also offers flexible terms, allowing you to invest some of the premiums in stocks, bonds, and other investments.
Group Life Insurance
Group life insurance is a group-based policy generally offered by employers, unions, associations or other large organisations as a benefit. Typically, this type of policy provides members with low (or no) premiums and limited coverage.
Other Types of Life and Disability Cover
Australian life and disability insurance companies typically also provide cover for the following:
Total and Permanent Disability (TPD) Insurance
You could make a TPD insurance claim when you can’t work anymore in your usual occupation due to an illness or injury.
Income Protection Insurance
When an illness or injury temporarily stops you from earning a wage, you could claim income protection benefits to receive a per cent of your regular pay.
Critical Illness and Trauma Insurance
You could have a successful critical illness or trauma claim when diagnosed with a specific severe injury or chronic medical condition.
How you make a claim depends on whether the policy is through a superannuation provider or stand-alone.
How to Claim a Life Insurance Benefit in 4 Steps
Undoubtedly, the passing of a loved one can seriously disrupt your life. But at this difficult time, it’s crucial to remember that they might have had a life insurance policy in place as an additional measure of family financial security.
If you are a listed beneficiary, here are the steps you’ll need to take to claim a life policy benefit:
1. Contact the insurer: Contacting the insurer is the first step in the claims process. You must provide them with copies of a death certificate and other required documentation.
2. Gather all necessary documents: Next, evidence required for your death claim, such as the policyholder’s will, beneficiary designation forms, and any other relevant paperwork.
3. Submit your claim: Once you have gathered all necessary documents, submit them to the insurer along with a completed claim form.
4. Wait for a response: After lodging your claim, please be patient until the insurer replies regarding the status of your claim.
What is the Time Limit for a Life Insurance Claim?
Generally, there is no time limit for lodging a life insurance claim. However, having an early claim will likely facilitate a more efficient process. If you are responsible for handling the assets of a loved one, you should first notify all known beneficiaries so they can lodge their case with the appropriate life insurer.
If you have death coverage yourself, it is worth regularly evaluating your life coverage to prevent leaving behind any surviving beneficiaries.
Death Certificate Requirements
A death certificate is a vital document needed to process life insurance payout, serving as proof of demise and used to verify the deceased’s identity, age, and other particulars.
You can get a death certificate from the state or county where the deceased passed away and typically need a completed application form, a fee, and supporting paperwork like their birth certificate or a copy of their driver’s license.
Claim Form Requirements
The process of claiming a life insurance benefit begins with lodging a claim form. This essential document determines your eligibility as a beneficiary providing evidence of your payment entitlements.
To have your case processed quickly and accurately, you will need to include information like:
- The insured person’s name, address and date of birth
- Details of the insured person’s death and their beneficiaries
- Proof of insurance with the policy number
Receiving the Benefit
The insurance company will arrange a cheque or direct deposit of the death benefit funds to confirmed beneficiaries once you have successfully filed an approved claim. Depending on the insurer, they may send this directly to the listed recipients or an estate executor.
Please retain all documents related to your claim, as you may need them in the future.
Additional Benefits Available Through a Claim
When you or a loved one passes away, life insurance protects your family financially. But lump sum payouts do not simply offer funds to cover funeral expenses and other immediate costs associated with the death.
You may have additional benefits available through a claim, like tax advantages, continued coverage, and more.
Beneficiaries may be eligible for specific tax benefits when they receive a payout. Please seek the advice of a tax specialist.
Beneficiaries of an insured person may be eligible for continued coverage after their death, enabling them to continue receiving benefits from the policy without paying additional insurance premiums.
In some cases, life insurance benefits can provide income replacement for those who have lost their primary source of revenue because of a fatality. These funds can assist with living expenses, debt payments, and other expenses during this challenging time.
Average Life Insurance Payout Australia
The amount of money received for an average life insurance payout will depend on several factors, including:
- The type of insurance policy
- The death coverage and any rider option the policyholder chose.
- The insured person’s age and health
- Whether or not there are any exclusions or limitations on the policy
- The beneficiary’s relationship to the insured person
Generally, the value of an insurance benefit payout depends on the amount covered by the policy and in Australia, the average payout ranges from $100,000 to more than $1 million.
When Does Life Insurance Pay Out?
Life insurance benefits are normally paid out upon the insured person’s death when the policy terms are met. When beneficiaries make a death claim with the insurance company, they hand over a certified copy of the death certificate.
Average Time for Life Insurance to Pay Out
The average time for a successful insurance claim settlement is generally about two weeks for processing and depositing funds into an account.
According to December 2022 findings from the Australian Prudential Regulation Authority (APRA) Report:
- Settlement takes less than two weeks for 71% of Australian life insurance claims.
- 20% payout between 14 days and two months
- A further 7% settles in less than six months
- The final 1% finalises between 6 months and one year
- Just 1% spans more than 12 months before payment.
What are the 4 Types of Life Insurance Payouts?
There are several different types of life insurance payouts, including:
1. Lump-Sum Payout
A lump sum payment is a one-time sum given to the policy beneficiary or beneficiaries.
2. Income Payout
An income payout is when the beneficiaries of a life insurance policy receive payments over time, typically every month. This payment type can replace income lost from the insured person’s death or as an ongoing source of financial assistance for the beneficiary.
3. Split Payouts
Split payouts involve breaking up the total insurance benefit into two or more separate payments. This arrangement can offer additional financial security for different beneficiaries or reduce tax and other expenses associated with receiving a large lump-sum payment.
4. Annuity Payout
An annuity payout is when a benefit payment funds an annuity contract from an insurance provider. Over a predetermined period, the annuity will give the beneficiary a guaranteed income stream, typically in monthly benefit instalments.
How are Payouts Distributed Between Beneficiaries?
Typically, a life insurance policyholder will designate one or more payout beneficiaries and sometimes contingent beneficiaries (additional people who may be able to receive a payment if the primary claimants have passed). Sometimes, there is no surviving eligible beneficiary. Below are the circumstances for payout distribution:
|Type of Beneficiary||Type of Payout Claimant|
|One Primary Beneficiary||The policyholder has assigned a payout percentage or fixed amount for each eligible party who must lodge a claim for their portion individually.|
|Several Main Beneficiaries||The death benefit payment is made to the insured’s estate when no surviving beneficiary exists. There, it will go through the probate procedure, where creditors will claim before being given to heirs.|
|Contingent Beneficiaries||A contingent beneficiary can claim when all other claimants have died, each needing to submit their case.|
|No Surviving Beneficiary||The death benefit payment is made to the insured’s estate when there is no surviving beneficiary. There, it will go through the probate procedure, where creditors will claim before being given to heirs.|
Reasons Why Life Insurance Won’t Pay Out
Life insurance payouts can be rejected or denied for a variety of reasons, such as:
- Fraud, policy misinterpretation or falsifying information
- The insurance company discovered that false information was given during the policy purchase.
Unsurprisingly, insurance companies have teams of investigators who scrutinise claims carefully to find ways of limiting their liability. Because of this, you need a skilled insurance claim lawyer to guide you through the claims process to a successful outcome.
Tax on Life Insurance Payouts Australia
Australian life insurance payouts are generally tax-free, depending on whether the death cover is through a superannuation provider. If the policy is not associated with a super account, it is typically tax-free; otherwise, how tax applies depends on how you receive payment.
For example, if the funds are deposited into your superannuation account and remain there until retirement age, they will be tax-free (other than possible super contributions tax). However, if you are younger than 60, you will have some tax liability when you receive funds or withdraw money.
For an effective strategy, it is best to request that a professional financial advisor review your tax obligations before receiving a payout.
Why Use a Lawyer for a Life Insurance Claim?
When someone passes away, it is often up to family members or other beneficiaries to file for life insurance benefits. Unfortunately, the process can be complicated and time-consuming, especially when there are disagreements among those involved in the claim.
In such cases, the life insurance experts at Aussie Injury Lawyers are your best option for winning your claim, as they have substantial experience litigating these kinds of legal matters.
Our skilled legal team helps with the following:
- Understanding the insurance policy terms.
- Advise on how to handle disputes among beneficiaries and insurers.
- Review any documents associated with a life insurance claim, such as death certificates or applications.
- Advocate for the beneficiary during negotiations with insurers.
- Assist with accurate payout allocation.
It’s free to understand your circumstances and how much you can claim, so call our knowledgeable and friendly team now at 1300 873 252.
Australian Life Insurance Payout FAQs
Can I claim life insurance before I die?
Claiming life insurance before death is known as a terminal illness claim and is included in most policies. To succeed, your doctor must provide evidence that you have a medical condition likely to cause your demise within 12 or 24 months (depending on your policy terms)
For a successful terminal illness payout, lodge a claim with the insurance provider, who may contest your case for several reasons.
How does life insurance work?
Life insurance is a type of contract between a life insurance company and you. When the policy owner dies, life insurance pays the beneficiaries a lump sum death benefit, provided you have current life insurance cover at the time.
What can delay an insurance benefit payment?
It’s crucial to be aware of potential situations that could cause a delay in the payment of an insurance benefit, with some of the common reasons being:
1. Incomplete Documentation: Before an insurance benefit payout, the insurer must ensure that all necessary documents have been submitted and reviewed. If any critical information needs to be included or corrected, this will delay the process, often requiring additional evidence over several months.
2. Contesting a Claim: If an insurance company believes there may have been fraud or misrepresentation in the policy application, they will contest the claim and delay benefit payment until it is resolved.
3. Poor Medical Records: If an insured person provides inaccurate details about their medical history or fails to disclose critical information, an insurance company will delay the payment of benefits until they have acquired sufficient proof that the policyholder’s death was due to natural causes.
How long does life insurance take to pay out in Australia?
The majority of Australian life insurance claims are paid out within a fortnight. However, about one-fifth takes up to two months for payment, with the rest settling within a year.
Does life insurance payout for suicidal death?
Given that suicide is a common cause of death for Australians under 50, many surviving claimants question whether they can collect life insurance benefits. Typically, the answer is no. Generally, claim eligibility for a self-inflicted fatality relies on the policy terms and conditions.
In most cases, an insurer won’t pay a benefit in the first 13 months of life coverage for a terminal disease, death by suicide, or intentional self-injury.
Additionally, there can be broader exclusions, like:
- Lying about your health when applying
- Intentional self-harm
- Fatality during hazardous activities or when breaking the law
Understanding policy T&Cs is the key to success, and the expert team at Aussie Injury Lawyers has the legal know-how to win your payout. It’s free to start, so contact us now at 1300 873 252