Buying Life Insurance? Take This Crucial Step

It could be harder for loved ones to collect if this step isn't taken.

Many consumers should purchase life insurance to protect their loved ones. There are many steps involved in the process of getting covered, including shopping around for insurance quotes and deciding how large the death benefit should be.

The problem is, sometimes consumers assume they're done with the process after they've found an insurer, applied for coverage, and been approved. But the reality is, there's one more crucial step to take. In fact, it may be the most important step of all.

Don't forget to do this when buying life insurance

One of the most important -- but often overlooked -- steps of buying life insurance involves letting loved ones -- or a trusted attorney or other financial professional -- know about the purchase.

When someone dies, the beneficiaries on the life insurance policy must actively make a claim with the insurer. This involves reporting the death and going through whatever claims process the life insurance company has outlined for beneficiaries who are requesting a payout of the death benefit.

If beneficiaries are unaware of the fact their deceased loved one has purchased a life insurance policy, they may not be aware there is a death benefit waiting for them, so they may not know about the need to make a claim. Or they may struggle to find a life insurance policy that exists. This could mean the insurer doesn't pay out the death benefit right away.

Now, insurers are required by law in most states to check death records and try to track down beneficiaries of unclaimed life insurance policies, in order to alert them about money available. But, this doesn't always work in every situation as insurance companies sometimes don't find out about a death for years, if they discover it at all.

This could mean that loved ones are left financially struggling despite the fact insurance is supposed to protect them from this fate -- and they may not get the money the policyholder intended for them for a long time. This largely defeats the point of purchasing life insurance, as most people buy policies to provide for the people they care about and make sure financial hardship doesn't follow a death.

How to alert loved ones to a life insurance policy

The easiest way to make sure loved ones are aware a life insurance policy has been purchased is simply to tell them. If a policyholder is certain about who the beneficiaries will be, the policyholder can talk to those relatives or friends and let them know that protections have been put in place. The policyholder could even give beneficiaries a copy of the insurance policy so they have it available and know exactly what to do after a death.

If a consumer purchasing life insurance doesn't necessarily want beneficiaries to know the specifics -- which could happen if they may change beneficiaries later -- then they can also let their attorney or other financial professional know. As long as the professional would definitely be notified of the death, this approach can still ensure a timely claim is made.

When paying for life insurance, no one wants the policy to go unclaimed -- so telling someone about the coverage should be on any consumer's to-do list after they get an insurance policy purchased.