By: Boonswang Law Firm

Delayed Payout? Life Insurance Companies May Owe Interest

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If a life insurance company is delaying payment of your claim, you may be owed interest.

When an insurance company denies or delays your claim, they can continue investing the proceeds and accruing interest that would otherwise be in your pocket. The insurer may owe you that interest under certain circumstances.

To find out if you are entitled to interest on your delayed life insurance payout, contact our life insurance beneficiary lawyers. We have over 25 years of experience getting clients paid and getting clients interest on their delayed payout. We can tell you if you are owed interest during your free, no-obligation case evaluation.

How Long Does it Take to Receive Life Insurance Death Benefits, Usually?

Wondering how long insurance companies take to process claims, or how long does it take for a life insurance company to pay out? An uncontested claim for death benefits, where the death of the insured does not require investigation, is usually paid within 30 days. Most states require life insurance companies to respond to a claim within thirty days, whether that response is approval, denial, or a request for more information.

Insurance companies are required to tell claimants which of the reasons life insurance won’t pay out. And when life insurance does not pay promptly, you have a right to know why.

How Can a Beneficiary Get Interest on a Delayed Life Insurance Payout?

If an insurance company unreasonably delays its response to your claim for death benefits, you may be entitled to interest. Whether you are owed interest on life insurance death benefits depends upon the terms of the policy and the jurisdiction governing the policy. 

Some life insurance policies include a provision that entitles a beneficiary to interest after a specified delay in payout.

Many states have enacted statutes that grant interest to a beneficiary of a life insurance policy when an insurer unreasonably delays a claim determination. For example, this Iowa statute explains the circumstances that allow a beneficiary to collect interest and the rate at which the interest is calculated.

Some delays in payment of the death benefit are considered inherently unreasonable, including:

Delay in Life Insurance Payment after Claim has Been Approved

Occasionally, an insurer or a company’s agent will tell a beneficiary that a claim has been approved, but the insurer delays sending payment. The longer an insurer retains the funds, the longer an insurer is able to continue investing those proceeds and reaping the profits for its shareholders. Under these circumstances, a beneficiary may be entitled to interest.

Delay in Payment of Claim Because Life Insurance Company Does not Contact the Beneficiary

Frequently an insurance company has reason to know that an insured died but fails to reach out to the beneficiary of the life insurance policy. Often a beneficiary is unaware that they are named in a policy or that a life insurance policy even exists.

If an insurer has reason to know that an insured has died, for example, because they use the Social Security Death Master File to identify policyholders who have died, that insurer should notify the beneficiary promptly.

Recently, several states have brought lawsuits against insurance companies that knew of policyholder deaths but failed to notify beneficiaries, retaining the death benefits and the interest accruing on them instead. Under these circumstances, a beneficiary may be entitled to interest due to the unreasonable delay.

Why Would a Life Insurance Payout Be Delayed?

Payout may be delayed six to twelve months or longer if the insurance company must investigate because:

  • The insured died within the contestability period, which is the first two years of the issuance of the policy;
  • The insured died overseas;
  • The insured died due to homicide;
  • The cause of death is excluded from coverage, such as death due to an illegal act;
  • The insured committed suicide;
  • The insured died of drug overdose;
  • The insured died of alcohol abuse;
  • The insured died due to smoking;
  • The insured die due to an Act of War;
  • There is a life insurance beneficiary dispute;
  • There was a last-minute change to life insurance beneficiary;
  • The primary life insurance beneficiary is deceased;
  • The insured did not name a spouse as beneficiary in a community property state;
  • The insured named an ex-spouse as beneficiary in a revocation-upon-divorce state;
  • The life insurance policy lapsed or terminated through no fault of the insured;
  • An employer improperly administered the group life insurance policy, causing the policy to lapse;
  • The insured was eligible for disability premium waiver and did not get it.

If you are a beneficiary to a life insurance policy and you’ve submitted your claim and all required paperwork but haven’t been paid, know that the insurance company has no incentive to pay you quickly. In fact, any delay means your payout is accruing interest and benefitting the insurance company’s shareholders.

In the past there were many examples of life insurance companies not paying claims without delay. Fortunately, laws have been enacted to incentivize insurers to pay life insurance claims promptly, and if they do not, they may have to pay you interest.

If you or someone you know is struggling with alcohol or drug abuse call the Substance Abuse and Mental Health Services Administration (SAMHSA) hotline at 1-800-662-HELP (4357) for free and confidential help, 24 hours a day.

If you or someone you know is struggling with thoughts of suicide, call the National Suicide Prevention Hotline at 1-800-273-8255 to access their national network of local crisis centers that provide free and confidential emotional support to people in suicidal crisis or emotional distress 24 hours a day, 7 days a week.

How Long Does a Life Insurance Investigation Take?

What is the typical timeline for insurance companies to investigate claims? It varies, depending upon the circumstances of the death. Beneficiaries should be sure to respond promptly to all information and documentation requests from the life insurance company.

After the insured has died, beneficiaries of the life insurance policy file a claim with the insurance company and include a copy of the death certificate with their claim, keeping at least one original death certificate for their records in the event that the life insurance company misplaces the one sent to them.

When the insurance company receives the claim form and a certified copy of the death certificate, insurers have 30 days to deny the claim, pay the claim, or ask for more information.

In some situations, insurers will need to investigate a claim and the payout will exceed 30 days. Depending on the terms of the insurance policy and the laws that govern the policy, sometimes a beneficiary will be entitled to interest that has accrued during the delay of payment.

If your claim has been pending for more than thirty days, whether you have heard from the life insurance company or not, contact our experienced life insurance beneficiary attorneys. We help beneficiaries nationwide get paid with interest when their claim has been unreasonably delayed. 

When Will Life Insurance Companies Investigate Claims?

In most cases, an insurer will either deny a claim or pay a claim within 30 days. When there is a delay in life insurance payout instead of denying or approving, it may mean that an insurer requires more time to investigate the claim. Delays will likely occur in the following situations:

Delay in Life Insurance Payout When the Insured Died by Homicide. 

When an insured is murdered, the insurance company often waits to pay any benefits until the investigation is completed. Depending on the type of policy in question (term life, whole life, or AD&D insurance), the insurance company may need to know whether the beneficiary is associated with the murder or whether the insured was engaged in a felony at the time of his or her death

Delay in Life Insurance Payout When the Insured Died in a Foreign Country.

If the insured dies while abroad, an insurance company may take longer to investigate the circumstances of the death.

Insurers always require proof of death when a claim is made. In the U.S., a death certificate is acceptable proof of death. However, customary practices, records, and technologies vary across countries and continents, and a foreign death certificate may not satisfy the insurance company. Also, to ensure a claim for overseas death is not fraudulent, an insurance company may attempt to confirm the circumstances of the insured’s death independently. Depending on where the insured died, this may extend the investigation period significantly.

Delay in Life Insurance Payout When there is a Beneficiary Dispute.

If the insurance company is notified that multiple parties might have a claim to life insurance proceeds, it will postpone paying the benefit until a rightful beneficiary is established. Often, the insurance company will not make this determination itself. The insurer may file a life insurance interpleader action, and a court will decide the lawful beneficiary.

Case Study #1: the insurance company delayed paying for over two years because the insured had a girlfriend and child and neither was named in his policy. Luckily for our client, Illinois law prevents such improper claim practices and unreasonable or vexatious delay in paying claims, and we were able to get our client paid.

Delay in Life Insurance Payout When the Insured Died Within the Contestability Period.

The contestability period lasts for two years. During this time, an insurer is authorized to investigate to look for evidence of fraud and misrepresentation in life insurance application and medical questionnaire. If the insured dies within this two-year period, a payout of benefits may be delayed while the insurer examines medical records, financial records, or other relevant evidence.

Delay in Life Insurance Payout When the Insurance Company Makes an Administrative Error.

Case Study #2: payment of our client’s claim for death benefits was delayed because the insurance company never received medical records from a doctor that the insured never visited.  

If your claim is denied, please get all the details you can about the reason for the denial: it may be something as simple as a mistake such as this preventing you from getting your life insurance payout.

Delay in Life Insurance Payout When the Insured Never Received Notice of Lapse or Termination.

Case Study #3: Our client’s claim was denied because the policy lapsed and terminated due to non-payment of premiums. We investigated and found that the insured never received the statutorily-required notices. We got our client paid.

What Can a Lawyer Do if a Life Insurance Payout is Delayed?

An experienced life insurance lawyer will be able to tell you whether the delay can be turned into approval and whether you are entitled to interest for the time of the delay. Do not rely on an insurance company to tell you that you are entitled to interest – they have no incentive to do so.

Our life insurance attorneys can demand and obtain the full death benefits you are legally entitled to. Again, your right to interest depends on the jurisdiction in which the policy was issued and the terms of the policy itself, and we help beneficiaries get paid in jurisdictions across the nation.

For more information about your rights to interest on a delayed payout of benefits, contact a trusted life insurance attorney at the Boonswang Law Firm with your questions. Your initial case evaluation is free of charge, and if we take your case, know that we don’t get paid unless you do.