Planning for the Payout

In Atlantic Canada, life insurance is a practical way to protect your loved ones. But to get the most out of your policy, you need to understand how the process works—especially when it comes to the death benefit in life insurance. That’s where Planning for the Payout becomes essential. A bit of preparation now can prevent delays or disqualifications down the road.

How the Death Benefit Works

When the insured person dies, their life insurance policy pays a lump sum—called the death benefit—to the named beneficiaries. This money can be used however it’s needed, including:

Covering funeral or burial costs
Paying off debts like a mortgage or credit cards
Replacing lost income
Funding education or future expenses

To receive the payout, beneficiaries must:

Notify the insurance company
Submit a completed claim form
Provide an official death certificate

Timeline: Most claims are paid within 30–60 days, provided everything is in order.

What Can Disqualify a Payout

Unfortunately, not all claims are approved. Knowing what disqualifies life insurance payout can help ensure your policy protects your family as intended.

Payouts may be denied for:

Lapsed Policy
- If premiums aren’t paid and the policy lapses, no payout is made.
False Information or Fraud
- Inaccurate medical history, hidden illnesses, or lifestyle misrepresentation can void the policy.
Excluded Causes of Death
- Some policies exclude deaths from:
  - Suicide (usually within the first 2 years)
  - Illegal activities
  - High-risk behaviour not disclosed when applying
Contestability Period
- During the first 2 years, insurers can investigate and deny claims due to misstatements, even if unintentional.

If the Policy Owner Dies First

A less common but important question is: what happens if the owner of a life insurance policy dies before the insured?

Here’s what typically happens:

If a contingent owner is named:
- Ownership passes smoothly to the new owner, and the policy stays active.
If no contingent owner is named:
- The policy becomes part of the deceased’s estate.
- It may be delayed in probate.
- If no one takes over, the policy could lapse without payment.

To avoid problems:

Name a contingent owner when setting up your policy.
Make sure someone is responsible for continuing premium payments.