By: Paul Tompkins | President
One of the primary benefits of life insurance is its “instant liquidity”. While the payment of a death benefit under a life insurance policy is not made instantly upon death, it can be surprisingly prompt after the claim has been submitted. So, how “instant” are we talking about, and what needs to happen for it to go as smoothly as possible?
One example
We often refer to the Rogers Enterprise tax case (2020 TCC 92 (CanLII) | Rogers Enterprises (2015) Inc. v. The Queen | CanLII) to demonstrate just how instant, instant can be, even in a complex corporate situation involving numerous policies. At paragraph 11 of the case, it states:
“Mr. Rogers died on December 2, 2008. On December 17, 2008, the proceeds of the Policies were paid to CGESR (a corporation), as the designated beneficiary of the Policies. The total amount of the life insurance proceeds was $102,309,794, ….”
15 days, 12 policies, $102 million – that’s pretty instant!
What information will insurers ask for?
So, what needs to happen? The process to manage and submit a death claim is an integral part of our role as our client’s agent:
Notification:
Once we are notified, we will notify the insurer of the death so that they can stop premiums and initiate their internal claims process.
Claimant’s Statement:
We will prepare a Claimant’s Statement that will need to be signed by the claimant (be it an individual or corporation). This statement will provide:
- details about the deceased (cause of death and medical details prior to death)
- who is the claimant, whether that be the estate, an individual, a company or trust.
- who has signing authority as the claimant.
- choice of how the death benefit proceeds are to be paid (cheque, ETF etc.)
Gathering supporting documents:
We will assist in gathering the necessary documents required to accompany the Claimant’s Statement. The standard requirements include a funeral director’s certificate (sometimes the original). When the claim exceeds $1M, additional documents will most likely be required, such as:
- a full corner’s statement, or
- a Provincial Death Certificate, or
- physician’s Statement
Submitting the claim to one or more insurers:
Once all the necessary supporting documents and signed forms are gathered, we will submit to them to our designated claim specialists at the various insurance companies.
Claim is approved and processed:
If all documentation is approved, the claim proceeds are paid to the beneficiary and the death claim is settled. Turnaround time can vary by insurance company, but if all requirements are met, it often can be settled within 12-15 business days.
Where can there be snags?
Signatures
Something as simple as signatures on the claims forms can be a cause of delay. Where there are multiple beneficiaries, each beneficiary must sign their own claim form to make their claim. For corporations, the person signing the claim form on behalf of the corporation must have signing authority. If the deceased is the only signing authority for the claimant company, this will delay the claim as a new signing authority will have to be appointed.
If the “estate” is named as beneficiary of the policy and the deceased has a will, if the claim is higher than a certain dollar amount (which varies by insurer), the executor makes the claim and the insurer will normally ask for a notarized copy of the will and probate. Where there is no will an administrator has to be appointed through a court process and then the administrator would make the claim and attach letters of administration. Anything involving a court process is not “instant”!
Where a minor is named as a beneficiary without appointing a trustee for that beneficiary, a guardian of property of the minor has to be appointed who would file and sign the claim on behalf of the child. This is all to say that who is appointed as a beneficiary of the policy has relevance to how fast the claim can be paid since it could take time to establish who should sign the form and submit the claim as well as satisfy other documentary requirements the insurer may have in order to pay the claim.
Best practice: Review beneficiary designations frequently to ensure they are accurate and up to date. In the corporate setting, ensure that if there are corporate reorganizations, the corporate beneficiary information is current and the appointment of officers with signing authority for any corporate beneficiary are up to date.
Will a claim be denied?
It is extremely rare but it can happen. Examples include: suicide within the first two years of policy issuance; murder of the life insured committed by the beneficiary; death in a foreign jurisdiction where the life insured is found still alive; fraudulent misrepresentation was made regarding the insured’s health and an early claim (within 5 years) is made due to that health condition. These are pretty extreme circumstances.
In general, expect that for large claims (over $5 million) if a death occurs within 5 years of a policy being issued, insurers will investigate any irregularities in information that was provided at the time of application versus at the time the claim is made concerning the individual’s health. Just because this is investigated, there should be no cause for concern if the information provided at the time of application matches up with the information provided on the claim.
The life insurance industry annually publishes statistics on the amount of life insurance claims paid in Canada. The most recent report (CLHIA-ACCAP – Canadian Life and Health Insurance Facts, 2023 Edition (uberflip.com) ) states that $9.4 Billion in life insurance death benefits were paid in 2022 from life and health insurers in Canada.
There are no broad industry statistics regarding how many life insurance claims are denied. We asked one major Canadian insurer, and they provided the following information for 2022 and 2023 respectively:
| Total number of life insurance claims | 15,115 and 18,184 |
| Total death benefits paid in each year approximately | $ 1.8 billion |
| Single largest claim paid | $25 million and $40 million |
| Total number of claims denied | 19 and 16 (which is 0.1% of all claims) |
| Average total amount of death benefits denied per year | $ 7 million (which is 0.4% of the total paid out) |
Fulfilling a promise
The paying out of the death benefit of a life insurance policy is the culmination of a contractual promise. For the thousands of personal policies, this payment can be an incredible relief and an economic and emotional event. For corporate-owned polices it is in many cases, the liquidity that preserves the business for next generations.
FOOTNOTE:
This publication is protected by copyright. Tompkins Insurance is not engaged in rendering tax or legal advice. TOMPKINSights contains a general discussion of certain tax and legal developments and should not be construed as tax or legal advice.
Should you wish to discuss this or any other TOMPKINSights article, please contact
paul@tompkinsinsurance.com
