More on Life Insurance
More on Life Insurance
TABLE OF CONTENTS
Life insurance is typically pretty straightforward: You pay for a policy, and if you die while that policy is still in force, the death benefit goes to your named beneficiary. Many people name their spouse as their beneficiary, but you can name other people (and entities) too, including siblings, business partners, charities or adult children.
You can even name multiple beneficiaries, and designate how you want the death benefit divided between them. But what happens if your life insurance beneficiary dies before you do, or dies before they receive the payout from your policy?
Luckily, your life insurance proceeds won’t just be stuck in the ether; life insurance companies have provisions to sort out who gets your death benefit if the beneficiaries you designated are no longer alive.
But if you’ve bought life insurance and pay your premiums, you probably want the proceeds to go to the person, people, or charities that you care about. Which makes it essential to keep your policy and beneficiary designation up to date.
That means making a regular review of your insurance policy and will, and updating your primary beneficiaries and contingent beneficiaries as necessary. Below, we’ll examine what can happen if your beneficiary predeceases you, including all the unique situations and scenarios you might not have considered.
If you die with an active life insurance policy, the payout goes to your beneficiaries
It’s important to keep your beneficiaries updated and to have contingent beneficiaries in case your primary can’t receive the money
If all your beneficiaries die and you do not update your policy, the death benefit will pay out to your estate and is subject to taxes & fees
Let’s say your life insurance policy lists your spouse as your primary life insurance beneficiary and your sister as your contingent beneficiary, or secondary beneficiary. If your primary beneficiary — your spouse — dies before you, your insurance policy proceeds will go to your secondary beneficiary, your sister.
But if you don’t have a secondary beneficiary listed (that is, only your spouse is listed on your life insurance policy) then there is essentially no beneficiary. If you were to die without naming a new beneficiary, the life insurance death benefit would go to your estate. When the death benefit goes to an estate (and not your beneficiaries), it can take significantly longer for your loved ones to gain access to the money and often involves costly estate taxes.
If your sole beneficiary dies, it is essential to update your beneficiaries. Updating your life insurance beneficiaries is usually a simple process — most companies allow you to update online or over the phone, but some may require you to fill out a paper change of beneficiary form and mail or fax it in.
The table below details how to update your life insurance beneficiaries with companies Policygenius works with. If your insurer isn’t listed here, contact them to find out how to make updates.
|Life insurance carrier||How to update beneficiaries|
|Brighthouse||Paper form (mail or fax)|
|John Hancock||Paper form (mail or fax)|
|Liberty Mutual||Paper form (mail or fax)|
|Mutual of Omaha||Phone call|
|Principal||Paper form (mail or fax)|
|SBLI||Paper form (mail or fax)|
|Transamerica||Paper form (mail or fax)|
Remember: when adding a beneficiary, you should have as much information about them as possible, including their full name, date of birth, Social Security Number and address. When your beneficiary claims your life insurance benefits when you die, they will usually be asked to verify their identity with the information you originally provided, so be sure to double check for accuracy.
If your primary beneficiary dies after you but before your life insurance policy is claimed, processed, approved and paid out to them, then the proceeds will be paid to your primary beneficiary’s estate, even if you have a secondary beneficiary. Your primary beneficiary is still the recipient because they were living at the time of your death.
Say your spouse is your beneficiary and you both die at the same time (for example, you’re both in a fatal car accident). The death benefit may go to your spouse’s estate or it may go to your contingent beneficiary, depending on the timing of your spouse’s death.
If there is evidence that your spouse lived even a few minutes longer than you did, then the benefit will go to their estate. But if the evidence shows that you lived longer, the death benefit will go to your secondary beneficiary. If you have no secondary beneficiary, it will go to your own estate.
If it’s unclear whether you or your primary beneficiary died first, then your life insurance company will pay out the death benefit as if you outlived your beneficiary, meaning the death benefit would go to your secondary beneficiary, if you have one, or to your estate.
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If you have multiple primary beneficiaries and one dies, the death benefit will be split among the remaining beneficiaries. Let’s say that your spouse and your sister are named as co-beneficiaries on your policy, rather than as primary and secondary beneficiaries. If they’re co-beneficiaries, they would each get 50% of your death benefit should you die.
But if either one dies before you, the other will get the full amount of your death benefit. If your spouse, sister and business partner are all listed as co-beneficiaries and your spouse dies before you, then your sister and business partner would each get half of the death benefit.
If your death benefit was meant to protect your beneficiary’s dependents, such as your grandchildren, then in this circumstance the deceased beneficiary’s heirs would not receive anything. To set up multiple generations of protection, you may want to set up a per stirpes death benefit.
If you have multiple beneficiaries (perhaps representing multiple branches of your family) but want the heirs of those beneficiaries to get the death benefit even if the primary beneficiary dies, you can make sure they’re protected by selecting a per stirpes death benefit.
Distributing your death benefit per stirpes, or “by branch” (as opposed to per capita, or by person) is a way to ensure that multiple branches of the family receive life insurance proceeds even if the primary beneficiary dies before you do.
Let’s say you have two co-beneficiaries, your brother and sister, and they each have their own children. You can use the per stirpes distribution to ensure that even if your sister dies before you, the death benefit that your brother would normally receive in full will instead be split in half between him and your sister’s children.
You can indicate that you want a per stirpes distribution when you name your life insurance policy beneficiaries.
If you die with no living beneficiary, the death benefit will go to your estate, which is the sum of everything that you owned, including property, possessions, and investments. What happens to your estate after you die depends on a lot of things, including where you live, whether you have a will, and whether you have any outstanding debts.
The process of administering your estate is called probate, and it's overseen by a probate court and your estate executor, who is either named by you in your will or appointed by a court. The process can take a year or more.
Your life insurance payout will become part of your estate, all of which (if it’s worth more than the amount set by your state and the federal government) is subject to state and federal taxes, and will be used to pay down any debts before it’s distributed to your heirs.
Life insurance proceeds that are received by a beneficiary are tax-free and available almost immediately after death in a lump sum or annuity payout. But proceeds from your estate could take up to a year to be distributed, and may be subject to tax.
If you don’t have a will (the term for dying without a will is “intestate”), then your estate will be handled under your state’s intestacy laws in order to find an heir (basically, they go through your family tree according to the state’s intestacy laws). If a living relative cannot be found, then the state will take the remaining assets.
If you want to have a say in who gets your life insurance benefit when you die, it’s important for you to keep your life insurance policy up to date. (And if you want a say in who gets the rest of your estate, it’s imperative that you create a will.)
You should always keep your beneficiary designation form up to date as well, with at least one contingent, or secondary beneficiary, listed. And if needed, you can set up your a per stirpes death benefit. Otherwise, you may not have a say in where your death benefit goes.
Not sure who to name as a beneficiary? Our agents can help you through every step of the application process.
Rebecca Shoenthal is an insurance editor at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.
Anna Swartz is a Managing Editor at Policygenius in New York City, and an expert in auto insurance. Previously, she was a senior staff writer at Mic, writing about news and culture. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.
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