The primary purpose of life insurance is to provide a financial benefit to dependants upon premature death of an insured person. The policy pays a specified amount called a “death benefit” to the named beneficiary, when the insured dies.
People purchase life insurance for many reasons; to provide an income to replace lost earning potential, to fund business or partnership buy outs in the event of death of one of the business owners, to fund retirement plans, to indemnify a loan in the event of premature death, to pay for college educations, to provide dependency income for the family, and to protect future insurability, are just a few.
Most life insurance policies contain an incontestability clause. This means if the insured dies during the contestable period, the insurer has the right to review the insured’s medical history before they pay or deny a claim. This could mean a delay since the insurer must request medical records. If there is a disagreement on how the proceeds of a policy are to be paid, the insurer can file for Interpleader with the court.