11:40 29 May 2013
It's a grim prospect having to deal with the bureaucracy and paperwork that follows the death of a loved one when you are in the midst of grief. But you don't need money worries on top of everything else and the payout from a life insurance policy will be a great help in the time to come.
MoneySupermarket has put together a simple checklist to guide you through the steps you need to take when a loved one dies.
1. Look for the life insurance policy documents
Contact the life insurer telling them you are making a claim. They have sympathetic and helpful staff who are used to dealing with people who are bereaved so the process is fairly quick and uncomplicated.
If you can't find the policy but know the name of the company, call them with everything you know.
If you don't know who the insurance is with, or the company has changed name, ring the Association of British Insurers instead who will help you track it down.
2. Get the paperwork in order
Along with the claim form, you'll need to send in a number of documents. The most important one is the death certificate which shows the cause of death. Insurers need the original document, so ask for several certified copies from the funeral company. Enclose your policy document if you have it and send them all by registered post or recorded delivery.
3. Fill in the form correctly
To speed up the claim, make sure the claim form is filled in correctly. If in doubt, ring up and ask for help while you're completing it. The insurer should also stop taking premiums on the policy and repay any paid since the date of death.
4. Get your payout
As long as everything is in order, the insurer will pay out the claim in a matter of days and certainly not more than a handful of weeks. Who is paid is more complicated...
It's simplest if the policy was written in trust. In this case, the insurer will pay the person named as the beneficiary on the document directly. The sum paid out doesn't have to be included in the legal documents sent for probate and sidesteps inheritance tax.
If the life insurance policy wasn't written in trust, it will be paid to the executors of the deceased's estate. They will handle the administration, known as probate in England and Wales and confirmation in Scotland. Until probate is granted no money or gifts can be paid out to those named in the will and can take several months. On average it takes six months. If it takes longer than two months, the money will earn interest.
If there is no will: If there is no will, the life insurance along with all other assets will be paid out according the rules of intestacy. This can be a long and drawn-out process that can cause anxiety and stress at an already difficult time. A will should be part of every family's financial planning.
What to expect if there's no will: The insurance payout will become part of the estate which includes investments, savings, homes and anything of any worth. Everything has to be valued before probate will be granted and inheritance tax (IHT) paid on it if it's due. The first £325,000 is tax free, after that IHT is charged at 40% on everything else.
Anything given to a husband, wife or civil partner is exempt from IHT. If your spouse or partner has already died and they gave everything to you, then you have their IHT allowance to use too, meaning your estate can be worth twice the limit (so, £650,000) before IHT will be charged.
5. If there are problems
Sometimes there are problems claiming on the life insurance. For instance, a claim can be refused if the person taking out the policy was a smoker and neglected to say so - or if they weren't honest about their medical history. If you don't agree with the insurer's reason for turning down a claim, you can appeal to the Financial Ombudsman Service who will decide who is in the right.
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