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While most life insurance beneficiaries wouldn’t think of turning down a life insurance check, it’s possible to waive your claim to the proceeds from life insurance companies if you so desire.

To forfeit your share of the proceeds from your family member's life insurance policy, contact the life insurer and make it aware of your intentions.

Each life insurance company will have its own process for waiving rights to your portion of the benefits. You may be required to send a letter to the life insurance company or fill out a waiver form.

Key takeaways:

  • You’re able to forfeit money received from a life insurance death benefit.
  • An insured person may forfeit a life insurance policy if they stop making payments.
  • You may be able to get money from a lapsed life insurance policy depending on the type of policy.

If you waive your rights to the money, the life insurance company will treat the situation as if you were a beneficiary who passed away immediately before the insured, your mother. The life insurance benefit will be paid out to the other beneficiaries accordingly.

If you’re forfeiting your share of the proceeds due to worries about taxes, be aware life insurance benefits are not taxable.

What is life policy forfeiture?

Forfeiture happens when one of the parties to a contract backs out. For example, you may forfeit a life insurance policy when you stop making payments.

Another way a life policy forfeiture could happen is if the insured doesn’t tell the truth when applying for the life insurance. Insurance companies use this information to determine eligibility and approval. If there's a medical condition that’s not disclosed, it could change that person’s risk factor, and therefore change their odds of approval and coverage.

"Life policy forfeiture is simply insurance forfeiture of a life insurance policy. When premiums aren't paid as stipulated in the insurance policy, the policy will ‘lapse’ -- which means that the coverage ends and the policy is no longer in force or active,” says Shiela Companie, vice president and chief life actuary at Amica Life.

What is insurance forfeiture?

When an insured person stops making premium payments, the life insurance policy lapses and it’s considered in forfeiture. At this point, the insured is no longer covered under that policy, and any proceeds due to beneficiaries won’t happen.

"Insurance forfeiture generally occurs when a person who owns an insurance contract doesn't make the required premium payments on that contract,” Companie says.

Can you get money back from lapsed life insurance policies?

Whether you get money back from a lapsed life insurance policy depends on many factors.

"For term life insurance, generally there are no options available to get back any money paid into the policy once it has lapsed,” Companie says. "For permanent life insurance, such as whole life, you may be able to get some money back by accessing the cash value associated with the life insurance policy."In the case of whole life insurance, you’ll likely be eligible to get back some or all of the premiums you've already paid. If you pre-paid any premiums and then cancel your policy, the life insurance company must return those premiums.

It's not as easy as forfeiting and getting back the money.

"Some policies have surrender charges, which will reduce the amount of money that's paid out. Typically, policies that have been in force longer have more time to build up larger amounts of cash value, and also will have lower or no surrender charges,” Companie says.

Do you get a pay out if you outlive your term life insurance policy?

If you outlive your term life insurance policy, you’re out of luck -- unless you purchased a "return of premium" rider. A term life policy is for a period. If you outlive that period, you don't get any money and there's no death benefit for your loved ones.

However, a term life policy's return of premium rider does give back the premiums minus any fees. Those policies are much more expensive than standard life insurance policies.

"Policyholders have different reasons for terminating their policies, sometimes using cash values to address financial emergencies or achieve long-term goals,” says Brian Bayerle, senior actuary at American Council of Life Insurers."Some policies that lapse still have a cash value, entitling the policyholder to some form of benefit under the available nonforfeiture options."

What is the nonforfeiture option in a life insurance policy?

If your life insurance policy contains a nonforfeiture option, you will likely be entitled to get back some of the premiums you have already paid.

The clause, which is relatively standard, usually has a timeframe after which you would be eligible to receive back some of the premiums you paid.

Bayerle said, "Nonforfeiture value is the value of certain insurance policies with cash values if they are canceled or required premium payments are not paid. The value is available to the policyholder in multiple forms, including cash, extended term, or reduced paid-up insurance."

Three permanent life insurance options for nonforfeiture

With permanent life insurance, you will not lose the benefits fully. Instead, Companie says you will have three options:

  1. Cash out: Under this option, a cash payment is provided to the owner.
  2. Extended insurance: Under this option, the insured keeps the full protection provided under the insurance policy, but only for a limited amount of time.
  3. Reduced paid-up insurance: Under this option, the owner accepts a smaller amount of coverage, but no further premiums need to be paid and the benefit is provided until the insured's death.

"Permanent life insurance policies provide nonforfeiture options. These are contained in the policy, and the policy owner can choose from any of the available options if they stop making their premium payments," she says.

Frequently Asked Questions

What is a contingent beneficiary?

A contingent beneficiary is a person who receives the money if the primary beneficiary isn’t able or declines to collect the payout. In that case, the unclaimed life insurance goes to the contingent beneficiary.

How do you find a life insurance policy?

If you’re not sure a policy exists for a loved one, there are ways to get help, including from the National Association of Insurance Commissioners (NAIC), which offers a life insurance policy search.

According to the NAIC, millions of life insurance benefits are left as unclaimed property by beneficiaries each year.

The first places to start when looking for a life insurance policy are personal records, including:

  • Bank statements
  • Deposit boxes
  • Address books

Look for any documents that include information about life insurance companies, including financial records, bank account checks and addresses. In the address book, you should also look for an insurance agent. Check for contact information for the agent and see if that professional can help your search.

Also, look for names of attorneys, who might be able to help steer you in the right direction.

One other place to check is the deceased's job or business. Employers often offer group life insurance policies to employees. You may be eligible for a death benefit from a policy if your relative had a policy from work.

If you can't find the life insurance policy that way, the NAIC offers a free online tool that helps people find lost life insurance policies.

To file life insurance claims, you typically need to mail a death certificate to the insurer's office and must fill out a claim form that includes the deceased person's Social Security Number. The insurance company will review the information and pay out a death benefit if the life policy is in good standing.

Many state insurance departments may help with a policy search, too, so you can call your state to see if they can help with the search.

How long does it take for an insurer to pay life insurance benefits?

Most insurance companies pay death benefits within 14 to 60 days of the claim and related documents.

Make sure you provide all documents and information needed so the life insurer can review the information. One reason why a death benefit may take longer than a couple of weeks is if you don't provide all of the information needed.