Updated February 21, 20224 min read
Life insurance is pretty straightforward: You pay for a policy, and if you die while that policy is active, the death benefit goes to your named beneficiary. But if your life insurance has no living beneficiary, the payout doesn't just disappear.
If your primary beneficiaries die before you, your contingent beneficiaries get the benefit. But if no beneficiaries can claim the money, it's paid to your estate and goes through probate. To have the most control over who gets your life insurance proceeds, keep your policy and named beneficiaries up to date.
If your primary life insurance and contingent beneficiary can't accept the death benefit, the money goes through probate court with the rest of your assets. In probate court, a judge decides where the money goes and it can be taxed and given to creditors to cover any debts you left behind.
Normally, life insurance proceeds aren’t taxed and are available almost immediately after you pass away. But if the money goes through probate, any funds from your estate could take up to a year to be paid out.
If you don’t have a will, then your estate is handled under your state’s intestacy laws. According to most intestacy laws, your money would go to your next of kin. If a living relative can't be found, then the state will take your remaining assets.
It's essential to update your listed beneficiaries if any of your beneficiaries die or otherwise can't accept the benefit.
If your primary beneficiary dies shortly after you but their life insurance claim has already been processed and approved, the money goes 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 your time of death. But if the primary beneficiary never filed an insurance claim, the death benefit goes to the contingent beneficiary (as long as they file a claim). Rules may vary depending on your state's legislation.
If you and your beneficiary die at the same time (for example, you and your spouse are both in a fatal car accident), the death benefit will either go to your primary beneficiary's estate or your contingent beneficiary, depending on the timing of the primary beneficiary's death.
In the example above, the benefit would pay to:
Your spouse's estate: If there is evidence that your spouse lived even a few minutes longer than you did
Your contingent beneficiary: If the evidence shows that you lived longer than your spouse
Your estate: If you had no other contingent beneficiaries
If it’s unclear whether you or your primary beneficiary died first, then your life insurance company will pay out the death benefit to either your contingent beneficiary or your estate. State laws can differ in this scenario, so consult an estate attorney if you have questions.
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If you have multiple primary beneficiaries and one dies, the death benefit is split among the remaining beneficiaries. For example, if your spouse and your sibling are both named as primary beneficiaries on your policy, they would each get 50% of your death benefit.
But if either one dies before you, the other will get 100% of the death benefit. If your spouse, sibling, and business partner are all listed as co-beneficiaries and your spouse dies before you, then your sibling and business partner each get 50% of the death benefit.
You can choose how much of the death benefit each person gets, so one person could get 75% and another 25%, for example. If one person dies, their percentage is split evenly among the living beneficiaries. Contingent beneficiaries are only paid if all primary beneficiaries die.
If you have multiple beneficiaries but want their heirs to get the death benefit even if the named beneficiary dies, you can make sure they’re protected by selecting a per stirpes death benefit.
Distributing your death benefit per stirpes (instead of the default, per capita) ensures that multiple branches of a family receive life insurance proceeds. You can note that you want a per stirpes distribution when you name your beneficiaries.
Another way to protect your beneficiary’s heirs is by putting the life insurance money into a trust. You can dictate how any trust funds are spent and in what amounts. Work with an attorney to set up a trust that's tailored to your financial plans.
If you want to have a say in who gets your life insurance benefit if you die, keep your policy up to date so you don’t leave behind a life insurance policy without a beneficiary. To ensure you get a say in who gets the rest of your estate, create a will and estate plan with a licensed expert you trust.
If a policyholder dies and no beneficiaries can accept the death benefit, the money is paid out to the insured’s estate and a court distributes the money.
Life insurance only goes to a beneficiary's next of kin if they are listed as per stirpes in your policy. Your next of kin can get the death benefit if you make them beneficiaries or the benefit goes through probate.
If all primary beneficiaries die, the contingent beneficiary gets the death benefit. If the insured chose a per stirpes death benefit designation, then the primary beneficiary’s heirs get their share of the benefit.