Average Life Insurance Payout

In this article...
  • The average life insurance payout time depends on a variety of factors, including the type of policy you have, the death benefit amount and cause of death.

A life insurance policy is a way for your dependents — family members and loved ones — to help pay for funeral costs and after-death expenses, create inheritance for heirs, eliminate any medical bills remaining and make up for loss of income that might be experienced from your passing. 

Average Life Insurance Payout

If you die and have a life insurance policy that is active and in good standing, the insurer pays out a tax-free death benefit to your beneficiaries for them to use as they see fit. Your loved ones need to communicate with the insurance company and provide the following to receive a payout: 

  • Death certificate
  • Proof of identity
  • Form that details all the information about the death and the beneficiary’s claim

It can take the insurer up to two months to process a beneficiary's claim and issue a payout amount. The insurer typically pays out the proceeds in a lump sum, although your loved ones can opt to take the payment in installments as an annuity. Most people choose the lump-sum option because setting it up to receive it in an annuity can result in penalties if they need to withdraw more than what’s disbursed in the scheduled installment.

What Happens If You Outlive Your Life Insurance Policy?

If you’re still alive at the end of the life insurance term period, your policy automatically expires unless you convert it into a permanent plan. There are no refunds on premiums and no death benefit payouts if you outlive the term and allow the policy to expire without converting it. 

What Are the Average Life Insurance Payout Times?

While a typical claim can take 60 to 90 days to process, it can take as little as two weeks if the information is straightforward. If the company needs to investigate the death in question, however, the payout time could be much longer. Generally, less complicated policies with a single beneficiary may pay out faster than a policy with multiple beneficiaries listed on the policy. 

There are several factors that may result in a delay in death benefit payments. Under the one- to two-year contestability clause, beneficiaries may face a six to 12 month delay if the policyholder dies within the first two years of the plan’s start date. Most insurance companies include this particular clause to ensure there is no fraud. 

Delays may also occur if the insured: 

  • Commits suicide during the first two years of the policy
  • Dies while engaging in illegal activity, such as drunk driving
  • Lies on the life insurance application or did not provide complete details
  • Fails to disclose important health information, risky hobbies or activities
  • Is murdered, which the insurance company will typically hold off on paying out a death benefit until law enforcement clears any beneficiaries of the death

It’s important to follow up with the insurance company in a timely manner to file the necessary claims. The average unclaimed life insurance benefit is $2,000 and as high as $300,000.