What happens if I take out life insurance and unexpectedly die the next day?
I am a firm believer in life insurance. I know may people have been burned and think its a scam, but it can be a very valuable tool in your financial portfolio.
First of all, insurance is a contract that pays out in the event of loss. Life insurance is an agreement whereby an amount is paid to named beneficiaries in the event of someone’s (the insured) death. The amount can be used for any purpose — to clear debts, for funeral expenses, to provide for surviving dependents, etc.
Now, a big challenge that people have in their experiences with insurance policies is that when they go to make a claim, things do not go smoothly. Once an insurance policy exists, and beneficiaries are aware, the expectation of payment arises once the insured dies. However, each policy comes wit terms and conditions which dictate when a payout will occur. These terms and conditions will vary across policy types, companies and countries. The terms may differ within the states or parishes of a country. This is why reading and understanding the terms of your specific insurance is important.
Things can get tricky in the case where an insured person dies the day(s) after a policy is opened. Policies are generally in-force and active once the first premium is paid. However, some policies may have clauses which stipulate that there are waiting periods before the full benefit amount can be paid. This means that there is a period of time for which the policy must be active before the full insurance amount will be paid. Policies may state that if the policy has been active for less than 30 days, then a portion of the benefit will be paid or there may be just a refund of the premium amount paid. There may be other stipulations which may see benefits being graduated, that is partial benefits may kick in after a specified time with full benefits coming in later.
Some policy holders may miss the waiting period in their insurance policy. Their beneficiaries are understandably incensed when a claim is made but the payout isn’t as expected because of the waiting period. They seem unfair. However, it must be noted that insurance companies have waiting periods to limit the possibility of claims being made under less than honest circumstances, for example prior to the commission of a crime, etc. Additionally, insurance companies make profits and payouts from the premiums they collect. The more premiums they collect is they more they have to payout to clients as well as to invest to secure their own profits. Based on this, you can see why waiting periods may be necessary.
In most cases, there is no way to get out of a waiting period. As a policy holder, it is important that you take the time to understand your contract. Don’t sign anything you aren’t comfortable with. Make sure to ask your insurance agent questions and get all the clarification you need.