Many life insurance companies try to contact beneficiaries if beneficiaries don't contact them first. The “problem” is that there is no automatic process that informs them about the deaths of policyholders. A will will not replace the beneficiaries listed in a life insurance policy. In most cases, the beneficiary listed on the life insurance policy has the right to claim payment regardless of the instructions in the will.
It's also a good idea to name a contingent beneficiary on your insurance policy if your primary beneficiary can't or doesn't want to accept payment. While you can name anyone as a beneficiary, be sure to notify them and provide them with a copy of your life insurance policy. Otherwise, they may not know or be unable to file a claim when the time comes. Most insurance companies don't even know that the insured has died and are also not required to inform beneficiaries who are listed in a policy.
This reduces the likelihood that a dispute will arise between your beneficiary and the insurer as to whether the coverage was in effect at the time of your death. There is usually no time limit for filing a death life insurance claim, but after about three years (depending on the state), benefit money can be transferred to the state. This is because the IRS could consider any proceeds of the death of the insured person as a gift from the policy owner to the beneficiary, meaning that it may be taxable. An APL policy borrows money from the cash value to pay a premium owed if the money does not reach the end of the grace period, preventing an involuntary expiration of the policy, which would have the disastrous effect of losing the entire death benefit if the insured dies after the unpaid premiums due.
Life insurance is a long-term contract with an insurance company that pays the beneficiaries stated in the policy. If you file a claim after three years, you'll need to go to your state's insurance department to file the claim. If you don't name a life insurance beneficiary, or all of your beneficiaries die before you, your estate becomes the beneficiary. You can also provide them with access to their life insurance account if the insurer has an online portal, as well as to the records of their premium payments.
Fortunately, individual states are creating legislation that requires life insurance companies to make a concerted effort to notify policy beneficiaries. However, if you can't find a life insurance policy for a deceased parent, you should consult your financial advisors about your estate plans. The name of the company that sold the original life insurance policy may have changed, which could make it difficult for the beneficiary to locate the insurer to file a claim. The reason for having life insurance is to provide financial coverage to the people you care about, and you don't want profits locked up in court for years.
Be sure to provide detailed personally identifiable information about each beneficiary to each life insurer for which you have death coverage so that you can easily locate them and confirm their identity.
