Facility Of Payment Clause

What Does Facility Of Payment Clause Mean?

A facility of payment clause is a provision in life insurance that grants the insurance company the authority to select the beneficiary or allocate part of the proceeds to someone other than the designated beneficiary. This clause can also be utilized to cover expenses related to the insured, with funeral expenses being the most common example.

Insuranceopedia Explains Facility Of Payment Clause

When a facility of payment clause is included in a life insurance policy (though it is not always present), the insurance company is granted partial or complete authority over the distribution of insurance proceeds. For example, the company may decide to pay the entire death benefit to a relative of the insured if the official beneficiary is a minor or has also passed away. The most common application of this clause involves the insurance company covering expenses related to the insured’s death, such as funeral costs. This type of payout alleviates the legal expenses of the estate, as it bypasses the need for asset distribution and instead directly addresses these expenses through the insurance company.