How Long Does the Insurance Company Have to Pay My Life Insurance Claim?
Filing a claim for life insurance benefits requires notifying the insurance company that a death has occurred and providing proof of loss as required by the policy terms, usually in the form of an official death certificate. The policy might dictate more specifically what types of documentation must be submitted or what forms must be used, and it might say when notice must be filed to be timely. It’s important, therefore, to check your policy and make sure you file the notice correctly to protect your right to receive benefits under the policy.
Assuming you filed the notice correctly, how soon should you expect payment? Does the insurance company cut you a check within days? Weeks? Months? You will likely need those benefits sooner rather than later to pay funeral and burial expenses, make up for lost income and stay current on bills, and pay all the numerous expenses you may incur in dealing with the loss of a loved one.
The insurance company, on the other hand, might not be so keen on making the payout, especially if it’s a large sum. State laws side with the consumer here, for the most part, and encourage insurers to settle their claims promptly.
Most state laws require life insurance companies to make payments in a timely manner, and most states have an interest provision to hurry the carrier along. The rules differ from state to state, but most follow one of a few general patterns. Here is a look at how different states approach the task of getting insurance companies to pay beneficiaries in a timely manner.
Disclaimer: This information is current as of this writing, but you’ll want to check the terms of your insurance policy and the laws in your state before relying on the information below. If you have any doubts about how to proceed, an insurance lawyer might be able to quickly advise you, or your state’s department of insurance might have a helpline available.
Pay Now or Pay Later (with interest)
Nearly half the states require life insurance claims to be paid within 30 days from the date of receipt of proof of death. After 30 days, interest starts to accrue. Depending on the state, interest might start accruing on the 31st day or it might go back and accrue from the date of death or receipt of proof of loss.
The states with a 30-day provision are: Alabama, Arizona, California, Delaware, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina, and Wisconsin.
In a handful of states, insurers have 60 days to settle the claim before they have to start paying interest. These states include: Alaska, Arkansas, Illinois, Michigan, Minnesota, New Jersey, North Dakota, and South Dakota.
To round out the field, a few other states have deadlines shorter or longer than 30 days but less than 60. These include Connecticut and Kansas (10 days), Tennessee (15 days), Louisiana (20 days), and New Mexico and Wyoming (45 days). Utah requires its insurers to timely pay every valid insurance claim, with interest on overdue amounts. A claim in the Beehive State is considered overdue if it is not settled within 15 days of the carrier’s completion of its investigation.
Imposing a time limit is a good incentive for insurance companies to settle claims promptly and avoid interest payments. Several states go even further, though; they require the policies to start incurring interest from day one until they are paid. Depending on the state, interest might start to accrue on the date of death or the date the claim is filed or proof of loss received. These states are: Colorado, Florida, Mississippi, New York, Ohio, Rhode Island, Texas, Vermont, Virginia, Washington, and West Virginia.
Pay in Good Faith
Regardless of the timeframe provided in the law, insurers should not unreasonably delay the payment of claims. Good faith, reasonable investigations are allowed to verify a covered loss and an active policy, but unreasonable delays or requests for additional documentation made for the purpose of avoiding payment of benefits or getting the beneficiary to give up on the claim are examples of bad faith insurance. For example, Colorado makes it clear its law should not be construed to allow an insurer to “withhold payment of benefits under a life insurance policy to any beneficiary for a period longer than reasonably necessary to make such payment.”
Other bad faith insurance practices related to payment of a life insurance claim include terminating a policy for nonpayment of premium without following the applicable grace period or canceling a policy based on application errors outside of the applicable contestability period.
When insurance companies act in bad faith, they can be held liable not only for the benefits due under the policy but also for other damages caused by their unreasonable and improper delays. Legal damages in a bad faith insurance case can include direct economic losses, so-called non-economic damages like mental anguish, inconvenience, or loss in quality of life, and punitive damages in appropriate cases, which can be several times any actual damages suffered.
Legal advice and representation from a law firm that practices exclusively in insurance law are recommended any time an insurance company unreasonably delays or denies a valid claim, especially if bad faith insurance is suspected.
