Who Gets the Life Insurance Money if the Beneficiary Is Deceased?
If your life insurance beneficiary is no longer living when you die, the death benefit will go to your estate. From there, the probate court decides where it goes.
It is important you keep your designated beneficiaries up to date to avoid this complicated scenario. When you die, your loved ones do not want to have to deal with financial worry or stress about who gets the money if the primary beneficiary is deceased. Consult with a legal or financial professional if you have questions about your life insurance policy.
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Understanding Life Insurance Beneficiaries
Most life insurance policies will allow you to designate both primary and contingent beneficiaries. A primary beneficiary is the first person you select to receive the death benefit when you die. A contingent beneficiary is second in line and would receive the death benefit if the primary beneficiary is deceased or otherwise unable to collect the funds.
It is crucial to have beneficiaries selected because it helps determine where the death benefit will go and reduces the chance of any legal complications upon your death.
How Do Death Benefits Work?
When you purchase an insurance policy, you choose the death benefit amount at that time. However, depending on your policy type, other factors, such as cash value and outstanding loans, can amend the death benefit when it is time to pay out. Talk to your insurer to clarify what will be factored into your death benefit when you pass.
When you die, the benefit is paid to your beneficiary after a claim is submitted to the insurance company. If you stop paying premiums before your death, your policy will lapse, and the death benefit cannot be paid. So it is crucial you make your premium payments on time, as you cannot predict the future. If your policy is currently lapsed, discuss your options for reinstatement with your insurer.
Life Insurance Scenarios Involving Deceased Beneficiaries
Unfortunately, sometimes scenarios arise where a beneficiary dies, so the death benefit they would receive could be compromised. Here are a few common scenarios.
Beneficiary Dies Before Receiving Death Benefit
If a beneficiary dies before receiving the death benefit, the policy terms dictate what would happen next. If you’ve named contingent beneficiaries, the death benefit would pass to them.
The benefit, however, may become part of the deceased beneficiary’s estate if no contingent beneficiaries are named or if they are deceased. After their passing, their estate is distributed according to their will or the laws in their state. This scenario shows how important it is to ensure your beneficiaries are kept up to date as much as possible.
Simultaneous Deaths of Policyholder and Beneficiary
If you and your beneficiary die simultaneously, specific policy provisions apply to determine what happens with the death benefit. If your beneficiary dies just after you, and the insurer has already approved them to receive the death benefit, it may be sent to their estate.
If the claim has not been made yet and the beneficiary passes, the death benefit could go to their estate or yours if there is no contingent beneficiary. In the rare scenario of simultaneous deaths, clear policy language and proper designation of contingent beneficiaries are crucial to ensure that the right people get the death benefit you choose.
Multiple Beneficiaries Scenario: One Dies
When you have designated multiple beneficiaries, and one dies before the other, the policy language determines the death benefit. There are two common ways that insurers handle this situation:
- Per capita: In cases where the policy specifies “per capita,” the surviving beneficiaries share the benefit equally.
- Per stirpes: If the policy is “per stirpes,” the deceased beneficiary’s share passes to their heirs.
Insurers should provide precise wording on whether your policy is per capita or per stirpes, but ask if you need clarification and make sure your beneficiary designations are up to date.
Beneficiary’s Death Before the Policyholder’s Demise
The fate of the death benefit depends on the policy language and if the beneficiary dies before you do. If you have not designated any contingent beneficiaries, the benefit often reverts to your estate. Keeping beneficiary designations up to date is crucial to avoiding unintended consequences, such as your family having to deal with the legal complications of an estate.
If you have contingent beneficiaries designated, the death benefit will go to them. As with all the other scenarios, this shows the importance of ensuring your beneficiaries are up to date and that you also designate contingent beneficiaries.
Charity No Longer Exists
Some people may choose to name a charity as their beneficiary. However, there can be some complications if you pass away, the designated charity no longer exists, and you have no contingent beneficiaries. Usually, your estate may receive the benefit, or a successor charity may be named depending on the policy language.
Most policies provide options to deal with such contingencies. A periodic review and update of your beneficiary designations is essential to avoid uncertainty, especially when naming a charity or other organization.
How to Update Your Beneficiary
Now that you understand the importance of making sure your beneficiaries are up to date, here are the steps to do so.
- Review your policy. It’s crucial to regularly review your policy to see who your current beneficiaries are. If you purchased your policy several years ago, the people you named then may no longer apply.
- Contact your insurance company. Call or email your insurance company to let them know you want to update your beneficiaries. You will likely have to complete a form or online query. It is not required, but having your beneficiary’s social security number is helpful.
- Create a contingency plan. Designate at least one contingent beneficiary if you have someone in mind.
- Keep your documents safe. Make sure you keep copies of your policy accessible. It’s also a good idea to give a copy to your beneficiaries.
All in All
Life insurance doesn’t have to be complicated, but it is imperative that you review and update your policy periodically. Your beneficiaries should be reviewed at least annually to avoid any legal complications or issues with your death benefit when you pass away. Ensure that you have some contingency plans in place if the primary beneficiary should die.
Whenever you experience a big life change, like marriage, divorce, or children, use that time as a reminder to perform a policy review.