Learn about the different ways that siblings can be listed on a policy, share life insurance proceeds, and receive the death benefit.
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Sibling rivalry takes on a whole new meaning when life insurance is involved. But it doesn’t have to get biblical. Siblings who are co-beneficiaries of their parent’s life insurance proceeds will typically receive an even split of the death benefit, as designated by the parent’s policy.
Below, we’ll explore different life insurance scenarios siblings may run into, including what to do if you received a life insurance death benefit and your sibling was not listed as a beneficiary, how to designate your sibling as a beneficiary of your own life insurance policy, and how to buy life insurance for your brother or sister.
You are not required to share a life insurance death benefit with others if it is not part of a trust
If your brother or sister relies on your for financial support, you can name them as a beneficiary of your life insurance policy
To take out a life insurance policy on a sibling, you must prove insurable interest and get their signature
Because you must prove insurable interest, most people pick their spouse or partner as the primary beneficiary of their life insurance policy. In fact, nine U.S. states legally require you to do this (due to community property law). But oftentimes, people designate part or all of their life insurance policy to other family members – such as their adult children – either because they are divorced, widowed, or their children depend upon them for financial support.
A primary beneficiary is the person who files a claim to collect your policy’s death benefit after you die. You can name more than one primary beneficiary, and assign a percentage of your insurance payout to each co-beneficiary.
A contingent (or secondary) beneficiary is next in line. In case all your primary beneficiaries pass away before or at the same time as you, these beneficiaries collect the death benefit. As with primary beneficiaries, you can name more than one contingent beneficiary and assign a percentage of your insurance payout to each.
The way a life insurance death benefit is paid out and distributed between beneficiaries depends on how the insured set up their policy.
Life insurance policyholders have the option to choose a per capita or per stirpes death benefit payout. By default, most policies are per capita, meaning the death benefit is split equally between living beneficiaries. A per stirpes payout allows the death benefit to be split between living beneficiaries and any deceased beneficiaries’ heirs.
If a primary beneficiary is unable to claim the death benefit and contingent beneficiaries were not named, then the insurance company pays out the sum to the deceased’s estate. Siblings may find themselves in this situation if both parents are deceased and didn’t name contingent beneficiaries.
Once the death benefit becomes part of the estate it’s subject to estate taxes and a judge will decide who gets the money in a probate process that can take months or years. They may rule that siblings evenly split the death benefit, or may favor one sibling over another if they relied financially on them.
The short answer: probably not. You don’t have to share the proceeds of a life insurance death benefit with anyone (unless you received it as a part of a trust for a minor child).
The life insurance company portions out death benefit payments, so if your sibling didn’t receive money because they were not listed as a beneficiary, then you don’t need to pay them out of your lump sum unless you want to.
In some situations, it makes sense to designate your sibling as a beneficiary of your own life insurance policy. As long as you do not live in a community property law state, then naming a sibling is as simple as proving insurable interest (that they will suffer financially if you die).
Why you might name a sibling as your beneficiary if they:
Take care of your aging parents
Care for your children
Have a disability
Cosigned a loan with you
Rely on your financial support or income
If your sibling provides end-of-life support to a parent, provides child care for your kids, shares debt with you, or relies on you financially, you’ll probably want to leave a portion of your life insurance death benefit to them.
We advise against naming a minor child as your life insurance beneficiary because it’s unlikely they will be able to receive the death benefit. Life insurance companies are regulated by state law and are prohibited from paying out a death benefit directly to anyone who has not reached the “age of majority.” The age of majority is 18 in every state except Alabama and Nebraska, where it’s 19.
Siblings can be great secondary beneficiary options if you have minor children and your primary beneficiary is your spouse. Assuming your siblings are adults, they’ll be able to claim the death benefit if something happens to both you and your partner and can provide for your children after you’re gone.
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Taking out a life insurance policy on someone else is possible if you share insurable interest and can get their signature on the policy. You can’t take out life insurance on your brother or sister (or anyone else) without their knowledge.
It’s unlikely that you’ll have an insurable interest in your sibling, but some scenarios, such as the ones listed above may apply. If they co-signed a loan on a house with you, for example, you may want to take out life insurance on your sibling in case they die before the loan is paid off.
Accounting for family members, including siblings, in your financial plan is smart. Naming a sibling as a beneficiary of your own policy makes sense in certain situations, as does taking out a policy for them and naming yourself as the beneficiary. Sharing life insurance proceeds from a parent’s life insurance policy with your sibling is common and the life insurance company will distribute the death benefit according to the policy.
You can take out a life insurance policy on someone else if you can prove insurable interest and obtain their signature on the policy.
Anyone with insurable interest who would suffer financially if you died.
Most states do not require you to share life insurance proceeds with anyone. If you and your sibling are co-beneficiaries on a policy, the insurance company will split the sum before it is distributed.
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