When a loved one dies, you are entitled to the death benefit proceeds of any life insurance or annuity policies where you are listed as a beneficiary. You don't have to pay income tax on the proceeds, so there is no reason to allow these benefits to sit unclaimed. However, you should understand what happens with insurance benefits that remain unclaimed because it could affect how you make a claim in the future when you decide to claim the death benefit.
The process for claiming unclaimed insurance benefits depends on how long the benefits have remained unclaimed. You should first attempt to contact the insurance company that holds the policy. The claims process involves submitting a claim form along with a copy of the death benefit. If the insurer knows the insured individual has died, and no claims have been submitted for at least a year, the insurer may turn the funds over to the state's unclaimed funds. The insurer is not obligated to do this, however, and the laws on when an insurer is allowed to do this vary by state.
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The significance of filing for unclaimed funds is that you may or may not be accumulating interest on the unclaimed death benefit. If the death benefit is held with an insurer, the insurer generally holds the death benefit in the general account and allows the death benefit to accumulate interest. If the death benefit has been turned over to the state, the benefit may not earn any interest at all.
Regardless of whether you file a claim immediately after the insured's death or whether you wait 20 years, you are entitled to the money. You can never lose the death benefit proceeds. However, there is no reason to wait to claim a death benefit and the proceeds may be able to provide money you need to pay for the insured's burial and funeral expenses or for other debts that you cannot pay for after the insured dies.
When making a claim for death benefits that have remained unclaimed, you don't have to take a lump sum payment if the benefit is still with an insurance company. You may leave the death benefit with the insurer to accumulate interest, you may draw interest from the invested death benefit proceeds or you may take monthly payments.