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If you have a life insurance policy, the death benefit or payout your beneficiaries can receive after you pass away will depend on several factors, such as the type of payout they choose. Let’s dive deeper into life insurance payouts and the average payout amount.
How life insurance payouts work
When you die, your beneficiaries will need to file a claim with your life insurance company. Upon approval, they can choose how they’d like to collect their life insurance payout, which is also known as the death benefit. While options vary by insurer, here are some common payout types:1
Lump-sum payout
With a lump-sum payout, your beneficiaries will receive the entire payout at one time. They’ll then have all the funds to use in any way they wish. This is typically the simplest and most popular option.
Installment payout
An installment payout is when the insurer will pay your beneficiaries a certain amount of money on a fixed schedule, which may be monthly, quarterly, or yearly. Eventually, they’ll receive all the money they’re owed.
Specific income payout
The specific income payout is when the insurance company places the payout into a taxable, interest-bearing account. Then, the beneficiaries receive monthly or annual payments of an amount they choose.
Annuity payout
If they’d like, your beneficiaries can convert your life insurance policy to an annuity. With this option, they’ll receive guaranteed payments for the remainder of their life.
Retained asset account
A retained asset account works like a checking account for your beneficiaries. The insurer will hold the payout in an account that accrues interest, and they can write checks against it as they need to.
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What is the average life insurance payout?
Not all life insurance payouts are created equal, and may depend on several factors covered below. On average, however, a typical life insurance payout in the U.S. is about $168,000.2
How a life insurance payout is determined
These factors will help dictate your life insurance payout:
The policy’s face value
The face value of your policy is the dollar amount it’s worth, or the amount paid out to your beneficiaries when it expires.
Type of policy
The type of policy you have, whether it’s term life insurance or a permanent policy like whole life or universal life insurance, will play a role in your payout.
Cash value withdrawals
If you have a permanent life policy with a cash value component and choose to withdraw funds from it, the payout will be reduced.
Use of riders
Riders are optional features you can add on to life insurance for an additional cost. They can help cover events or situations your standard policy doesn’t and may impact the payout.
How long does it take to receive a life insurance payout?
Typically, life insurance companies pay out within 60 days of when they receive a death claim from the beneficiaries.3 These factors can all impact the timeline:
Payout method
A lump-sum payment, for example, will likely be easier and faster for a life insurance company to pay out than a specific income payout or retained asset account.
Providing the required documentation for the claim
If any documents, like a death certificate or police report, are missing or inaccurate when a claim is filed, the payout may be delayed.
Number of beneficiaries
In general, life insurance payouts that involve multiple beneficiaries take longer to receive than those with a single beneficiary.
Cause of death
Life insurance is intended to help cover death due to natural causes, like cancer or a heart attack. So, if the cause of death wasn’t natural, the payout process might take longer.
State laws
Each state has its own rules and regulations for life insurance payouts that may expedite or prolong the process.
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Aflac offers term and whole life insurance that can help your beneficiaries receive financial protection in case you pass away. You may get approved for a policy quickly with no medical questions. Chat with an agent and get a quote today!
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Disclaimer
1 Experian - How Do Life Insurance Payouts Work? Updated April 7, 2021. https://www.experian.com/blogs/ask-experian/how-do-life-insurance-payouts-work/. Accessed March 29, 2023.
2 RetireGuide - Facts About Life Insurance: Must-Know Statistics in 2023. Updated March 23, 2023. https://www.retireguide.com/life-insurance/statistics/. Accessed March 29, 2023.
3 Policygenius - How Long Does It Take to Get a Life Insurance Payout? Updated February 24, 2023. https://www.policygenius.com/life-insurance/how-quickly-do-life-insurance-companies-pay-out-death-claims/. Accessed March 29, 2023.
Life – 68000 Series - In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. Term/Whole Life – B60000 Series – In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Group Whole Life - Q60000 Series - In Arkansas, Policy Q60100CAR. In Delaware, Policy Q60200M. In Idaho Policy Q60100CID. In Oklahoma, Policy Q60100co*k. In Oregon, Policy Q60100COR. In Texas, Policy Q60100CTX. Group Term Life Q60000 Series - In Delaware, Policies Q60200C. In Arkansas, Idaho, Oklahoma, Oregon, Texas, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C.
The content herein is provided for general informational purposes and is not provided as tax, legal, health or financial advice for any person or for any specific situation. Employers, employees and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
Aflac insurance coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage underwritten by American Family Life Assurance Company of New York.
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