Life Insurance Questions

Most death benefits are paid as one lump sum. The Texas Department of Insurance lists other settlement options the owner or beneficiary can choose: an interest option, where the company holds the money and pays interest at regular intervals; a fixed period, where the benefit is paid out in installments with interest over a chosen number of years; and a life income option, which pays a set monthly amount for the rest of the beneficiary's life.

Not when a living beneficiary is named. The insurer pays the beneficiary directly under the contract, outside the will. If no beneficiary is named, or every named beneficiary has died, the death benefit is paid to the insured person's estate and goes through probate, where the heirs may owe taxes on what they receive from the estate.

Coverage starts on the effective date shown in the policy, usually once the company approves the application and the first premium is paid. Some final expense policies issued without health questions pay a reduced benefit for death from illness during the first years. Every policy also has a two-year contestable period, when the company can look back at the application if a claim is filed.

Usually it does not until someone tells it. The beneficiary files a claim with the company, generally with an official copy of the death certificate and a claim form. Families who are not sure a policy exists can use the NAIC Life Insurance Policy Locator or search the state's unclaimed property list, since companies that cannot find a beneficiary must send the money to the state.

Underwriting is how the company decides whether to issue the policy and at what premium. It looks at age, health history, current medications, tobacco use, height and weight, and risky activities, using the application, medical records and sometimes an exam. A company can decline an applicant it considers a high risk. Policies that skip detailed health information usually carry a higher premium for less coverage.

Employers, unions and associations buy one policy that covers their members. Underwriting is not as strict as for an individual policy, and you usually do not have to answer health questions, so some people can get group coverage when they could not buy a policy directly. Risk is based on the whole group, not on one person.

The cash value of a permanent policy counts as an asset when Medicaid eligibility is figured, and so can money borrowed against the policy. Term policies have no cash value. Rules on how much is counted vary by state, so the state Medicaid agency has the final word.

Often, in Texas. According to the Texas Department of Insurance guide, both the death benefit and any cash value are usually protected from creditors, from bankruptcy demands, and from attachment, garnishment or other legal processes.

Once the claim is complete, payment is usually quick. Texas law requires companies to pay within two months after getting proof of death and verifying the beneficiary. A death during the two-year contestable period can take longer, because the company may look into the application and the cause of death.