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Life insurance is typically pretty straightforward: You pay for a policy, and if you die while that policy is active, the death benefit goes to your named beneficiary. Many people name their spouse as their beneficiary, but you can name other people (and organizations) 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? Your life insurance proceeds won’t just be stuck in the ether; life insurance companies have provisions to determine who gets your death benefit if the beneficiaries you designated are no longer alive.
But you probably want the proceeds to go to the person, people, or charities that you intended, which makes it essential to keep your policy and beneficiary designation up to date. That means regularly reviewing your insurance policy and will, and updating your primary beneficiaries and contingent beneficiaries with every big life event. Below, we’ll examine what happens if your life insurance policy has no beneficiaries left and how to ensure your loved ones get the life insurance death benefit.
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
Alongside your primary beneficiary, you can list a secondary (or contingent) beneficiary who gets the life insurance payout if the primary beneficiary dies and cannot accept it.
Let’s say your life insurance policy lists your spouse as your primary life insurance beneficiary and your sister as your 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 no one left to collect the death benefit payout. 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, it can take significantly longer for your loved ones to gain access to the money because it has to go through probate. Additionally, it might be subject to costly estate taxes or debt collection.
If your sole beneficiary dies, it is essential to update your listed beneficiaries to people who are alive and can accept the death benefit. 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.
Your life insurance policy should include details about how to change your life insurance beneficiary.
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
If you die and your beneficiary claims your life insurance benefits, 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 they have already filed the life insurance claim and it has already been processed, approved and dispersed to them, then the proceeds will be paid to your primary beneficiary’s estate, even if you have a secondary beneficiary.
Most likely, your primary beneficiary is still the recipient because they were living at the time of your death. But if the primary beneficiary never filed an insurance claim, the death benefit will go to the contingent beneficiary — as long as they file a claim. However, each state has different life insurance legislation and has varying rules for this scenario.
What happens if you and your beneficiary die at the same time?
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.
Again, each state may treat this scenario differently and it’s best to consult a lawyer familiar with your state’s local laws.
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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 both named as primary beneficiaries on your policy. 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 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 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 receive in full under a regular death benefit distribution will instead be split in half between him and your sister’s children.
The life insurance death benefit will be distributed depending on how you have your per stripes death benefit designation set up.
You can indicate that you want a per stirpes distribution when you name your life insurance policy beneficiaries.
Another way to protect your beneficiary’s heirs is by putting the life insurance money into a trust. For example, if you are married with children, you could list your spouse as your policy’s primary beneficiary, and the trust as your contingent beneficiary. That way, if your spouse passes away before they can file a claim, your children will still have some financial security.
Trusts come in all shapes and sizes. Consulting with an attorney is the best way to set up a trust that is distributed the way you intend it to.
What happens when there is no life insurance beneficiary?
If you die with no living beneficiary or no life insurance beneficiary is named, 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 can be subject to state and federal taxes if it’s worth more than an amount set by your state government and the federal government. Additionally, any outstanding debts you owe will be collected from your estate before it’s distributed to your heirs.
Life insurance proceeds that are received by a beneficiary aren’t taxed and are 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 are considered intestate, which means you don’t have a will, then your estate will be handled under your state’s intestacy laws in order to find an heir. According to most intestacy laws, they go through your family tree. 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 if you die, keep your policy up to date and ensure you don’t leave behind a life insurance policy without a beneficiary. And if you want a say in who gets the rest of your estate, you should create a will.
You should always keep your beneficiary designation form up to date, with at least one secondary beneficiary listed. Doing so ensures that your loved ones get the life insurance payout you spent years paying for.
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When a life insurance policy doesn’t have a beneficiary, the death benefit is paid out to the insured’s estate.
Life insurance only goes to next of kin if it is listed in your policy. You can do this by assigning per stirpes designations in your policy. By doing so, the benefit would go to your beneficiary’s next of kin if they die and cannot collect the payout themselves.
If the primary beneficiary dies, the secondary beneficiary gets the death benefit. If the insured chose a per stirpes death benefit designation, then the primary beneficiary’s heirs get the primary beneficiary’s portion of the benefit.
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