When Is Life Insurance Paid Out?

Life insurance includes various types of cover, including payment on your death¹, payment after total and permanent disability², and income protection insurance³. However, because life insurance is primarily considered the insurance that provides payments to your beneficiaries on your death - that’s what we’ll focus our attention on here.

When is your life insurance paid out?

Typically, after death, the beneficiary contacts the insurer to notify them and start the claims process. However, if your cover includes critical or terminal illness cover, your life insurance can be paid out when a terminal illness is diagnosed and the insured person has less than 12 months to live.

Each insurer handles claims differently, but most strive to ensure a seamless and stress-free claims process, given that beneficiaries are usually grieving at this time.

Typical duration of death benefits payments

Most death cover claims are processed within two weeks, and approximately three quarters of claims are processed within eight weeks, according to The Australian Prudential Regulation Authority (APRA), and the Australian Securities and Investments Commission (ASIC) 2017 data⁴.

How to make a life insurance claimAPRA/ASIC data on claims processing duration by cover type - second pilot round (1 January 2017 to 30 June 2017)

As a beneficiary, you first need to notify the insurer that the person nominated in the life insurance policy has passed away.

You may also need to have relevant policy information with you when you contact the insurer, such as the policy number and identifying features of the nominated person.

Your insurer will provide details of the information required to make a claim. This may be as simple as producing the death certificate, or if the death was accidental, more information may be required.

Typically, your insurer will issue you a claim number and allocate you a claims consultant to help you manage the process of submitting your claim. You may also be required to complete forms detailing the nature of the claim, and provide any other documentation the insurer requests in order to process the claim.

Types of death cover insurance benefits

Life insurance providers in Australia offer a variety of features for death cover. Common options include:

• Terminal illness benefit: This provides payments if you’re diagnosed with a terminal illness and generally have less than 24 months to live
• Funeral advancement benefit: This provides a prompt initial payment to help your family cover immediate funeral expenses
• Pause payments benefit: This allows you to briefly and temporarily pause payments of your premiums should you experience financial hardship
• Inflation/automatic indexation benefit: This means that your premium will continue to increase each year in accordance with inflation, requiring payment of adjusted premiums
• Premium freeze benefit: This means that your premium does not increase as you age, but the lump sum you receive will decrease as you get older

How does life insurance work in Australia?

The life insurance industry in Australia is covered by the Life Insurance Act, 1995⁵. The act is designed to protect policyholders, while ensuring that life insurance providers are safe from fraudulent claims that can impact their commercial viability.

The act is a complex piece of legislation, but it’s overarching goals are to ensure life insurance customers are protected so that:

• Policyholders receive appropriate benefits when they claim
• Insurers provide a quality product and communicate fairly with customers
• Only registered providers can sell life insurance policies
• Insurance providers are supervised by both APRA and ASIC, giving them powers to intervene to protect policyholders if poor management is suspected

Considering purchasing life insurance?

If you’re considering taking out life insurance, it's important to shop around to find a suitable policy.

Sources:
1. https://www.moneysmart.gov.au/insurance/life-insurance/life-cover/
2. https://www.moneysmart.gov.au/insurance/life-insurance/total-and-permanent-disability-cover/
3. https://www.moneysmart.gov.au/insurance/life-insurance/income-protection/
4. https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-498-life-insurance-claims-an-industry-review/
5. https://www.legislation.gov.au/Details/C2017C00057/