In our set it and forget it culture we are constantly encouraged to be on autopilot. We have auto-deposit, auto savings, auto investments, and auto bill payments. However, just like we should review our automobile policies when they are about to be renewed, we should also review our life insurance policies. Especially if there are events in our life that alter our family members, the event could be a birth, a marriage, a divorce, or death. However, the death of a family member could be one of the greatest issues for your policy. It can affect what happens to life insurance with no beneficiary.
Who will be able to receive the life insurance proceeds if there isn’t a contingent beneficiary? There should always be a secondary beneficiary should the primary beneficiaries be unable to inherit from the policy owner. After you die what happens to life insurance with no beneficiary could be problematic. Let’s understand all the ramifications.
Life Insurance
We seek financial protection for our families by contacting a life insurance company. Based on the financial needs of your family and your financial obligations you purchase a life insurance policy. The policy should consist of a premium to be paid monthly, life insurance benefit, Terms, primary beneficiaries, and contingent beneficiaries.
The application will also require your full legal name, address, date of birth, Social Security Number, and answers to various health questions. In some cases, a physical examination may be required. You will also need to fill out a beneficiary designation form.
Please consult a financial advisor or licensed life insurance agent to review the various types of life insurance and the life insurance death benefit for your surviving living relatives.
Benefits Of Life Insurance
There are many benefits to obtaining life insurance. The main reason is the life insurance payout can replace lost wages, cover future college expenses, and pay off mortgages and other outstanding debts. It can also be used to create an endowment, donate to the charity of your choice, or buy out a business partner. Hence, having life insurance is for the protection of your family and their future.
Primary Beneficiary
The primary beneficiary of a life insurance policy is required. The named beneficiary can be a person or persons, or an organization. If it is several people or organizations, they can each share in the life insurance proceeds equally or based on a percentage. The choice is yours to make.
If you have more than one primary beneficiary and one happens to pass then the money would be equally divided amongst the remaining beneficiaries. This is a per capita distribution of the funds.
You also have the option of a per stripes distribution where the surviving beneficiary would receive their allocated amount and the deceased beneficiary’s distribution would go to their estate. The funds will be distributed per their estate plan.
Secondary Beneficiary
This person or persons are also known as the contingent beneficiary. They can receive benefits from the life insurance companies if the primary is unable to accept the death benefits. For example, If the primary dies, i.e. a spouse. The benefits would then be passed on to the contingent beneficiaries, i.e. the children or other designated persons. This is the case only should the primary beneficiary pass before the insured person. Therefore, you should always have secondary beneficiaries.
In my case should my husband who is my primary beneficiary die before me then our adult children who are the secondary beneficiaries would receive the death benefits on a 50/50 split upon my death. The death benefits will not be part of the primary beneficiary’s estate.
However, if the primary beneficiary is alive when the insured dies but dies before receiving the life insurance payout, the proceeds become part of the deceased estate. The funds are then distributed as part of the estate plan. Our children would be subject to the wishes of the estate plan. In our case, it is still a 50/50 split and nothing would change for them.
If the insured and the primary beneficiary die at the same time or within 24 hours of each other, then the payout goes to the secondary beneficiary.
What Happens to Life Insurance With No Beneficiary
Sometimes mistakes can happen, and the proper information is not communicated. As a result, there could be no beneficiary listed on the policy. Therefore, you should make sure to check all your policies for errors and make the necessary corrections immediately. Without a beneficiary, the death benefit will become part of your estate. You will need a living trust to prevent your estate from going through probate court. In probate, the funds are subject to fees, estate taxes, and costly delays.
Having a sole beneficiary can also leave you without a beneficiary if they were to pass away before you do. However, if this happens you should immediately update your policy with one or more beneficiaries to avoid probate court. You can add adult children, an ex-spouse, siblings, business partners, charities, or a trust. There is no limit so you can add multiple beneficiaries.
Probate
What is probate? In simple terms, it is the validation of the will of the deceased or decedent. The court appoints someone to gather the assets of the estates of the person who has passed. They then take the assets to pay the bills and distribute the remaining balances to the beneficiaries who are entitled to these assets.
If there are no life insurance beneficiaries on the policy or they are deceased, the benefits will go to the policyholder’s estate. Once the funds are added to the insured remaining assets it will be subjected to state and federal taxes. It will also be used to pay off any outstanding debts before any of the money is distributed to the insured’s heirs. This will include anyone not on the insurance policy but who is heir to the estate.
The entire probate process is governed by state laws and could take a few weeks to complete. It can be longer if there are any disputes. This can also drive up the cost if you need to consult a lawyer for advice. The best way to avoid this is to designate your beneficiaries.
Minor Children
Insurance companies will not pay out life insurance benefits to minors. You will need to assign a custodian for your children. If not, the court will assign one during the probate process. Therefore, as the insured person, you should carefully choose a legal guardian you trust to take care of your children in the event that something happens to you. Learn more from Haven Life.
What Happens To Life Insurance With No Beneficiary Recap
Providing for your family should something happen to you is probably the most important financial decision you can make. The best way to do this is to have life insurance. Here are some steps to ensure that this happens:
- Research the financial benefits of life insurance.
- Consult a certified financial planner.
- Speak to a licensed insurance agent.
- Decide on the policy’s death benefits that are within your budget.
- Make sure they meet the needs of your family.
- Decide on who should be your primary and secondary beneficiaries.
- Choose a legal guardian for minor children
- Have a will or a trust for added protection.
- Share the location of your will, policies, and trust with a trusted person.
This content is for information purposes only. Please consult a financial advisor and/or an insurance agent. I do not endorse any of the companies mentioned. Please research and do your due diligence. I do not get paid if you click any of the links in this post.
Additional Reading:
How To Know If A Financial Advisor Is Fiduciary