The concept of life insurance is simple: you pay for a policy, and if you die while the policy is still in existence, the death benefit is paid to the person or people you select. The benefit doesn’t expire if your life insurance has no surviving beneficiary. So,in life insurance policy, ‘beneficiary’ is an important term. Many of us question life insurance agents “what happens if the beneficiary dies before the insured.” Let’s dig into the discussion and enjoy!
What Is a Beneficiary in Life Insurance?
A beneficiary is a person or group who receives a certain amount if the life insurance policyholder passes away. Life insurance claims must be valid during the policy’s duration.
- One person
- Two or more people
- The trustee of a trust you’ve set up
- A charity
- Your estate
Your estate will receive the death benefit if no beneficiary is named.
Who May Get Life Insurance?
Beneficiary name will be:
- A spouse.
- A common law partner.
- Close or distant relatives.
- Charitable organisations.
In life insurance, you can include both “Primary” & “Contingent” beneficiaries.
- After the death of a life insurance policyholder, the primary beneficiary receives death benefits.
- If the primary beneficiary is missing, contingent beneficiaries get death benefits.
- Your estate receives the death benefit if no primary or contingent beneficiaries are discovered.
You should provide as much detail as possible when identifying beneficiaries, including full names and social security numbers. The life insurance company will have an easier time locating them, and any potential disagreements over the payout will be mitigated. Suppose in your form you write only “husband or wife,” don’t provide any name or details of that person. Then your ex-spouse can get the money. If you give your one child’s name as the beneficiary, your other children will not get the death benefit until you put his name into the beneficiary list.
Now let’s move to the query of many people who get life insurance if the beneficiary is dead.
Your Sole Beneficiary Dies
It’s a common question of life insurance policyholders “what happens if the life insurance beneficiary is deceased.”
A life insurance policy with just one beneficiary may be at risk if that person dies before you. After their passing, the policy’s payment would go to the estate.
What Happens If the Beneficiary Dies Before the Insured and You Don’t Adjust the Beneficiaries?
Your estate will get the life insurance policy’s death benefit if the only beneficiary dies without a replacement. Probate is the legal procedure through which a deceased person’s estate is divided, and it might take a year or more to wrap up.
In addition, the value of a life insurance policy included in the estate may be subject to taxation. However, the amount would be tax-free if the payment were straight to a beneficiary.
In This Scenario, What Should Be the Next Step:
First, allow more than one primary beneficiary to receive your death benefit.
With many primary beneficiaries, you may divide the money amongst them based on a proportion you decide. For instance, those with a partner and a single adult kid might divide their assets evenly. Your adult kid would get the policy’s remaining value for your spouse’s premature death.
As you know, minor children can’t receive the amount of life insurance. In this case, you can form a trust or wait to identify young children as beneficiaries of a life insurance policy.
Next, you can add a contingent beneficiary.
By adding a secondary beneficiary or contingent, you can ensure that the death benefit goes to someone you choose, not your estate. Like primary beneficiaries, you may add several secondary beneficiaries and share the death benefit.
One of the Multiple Beneficiaries Die
As in the situation of one of the primary life insurance beneficiaries deceased, the insurance profits would be distributed either to the surviving primary beneficiaries. Or, if appropriate, to the dependents of the deceased beneficiary. In such a case, it would be given to the contingent beneficiaries.
A beneficiary designation may be made per strip or capita. It refers to a beneficiary plan in which the deceased beneficiary’s heirs, such as children or grandchildren, get their inheritance. A beneficiary designation may be made per strip or capita. Death benefits paid per capita only go to the recipient while they are still alive; heirs do not get anything if the beneficiary dies.
The Policies of Per Capita & Stripes
Per Capita Policy
A policy’s payment will be divided among the other beneficiaries if there are many primary beneficiaries. For example, you have three children, making them all primary beneficiaries. Now that one of your children dies before you do, the death benefit from your insurance would be divided amongst the two children still alive.
Per Stirpes Policy
For the stripes policy, using the same family structure with three kids, if one of them passes away, their benefits will go to their kids or grandkids.
What Should You Do??
Be sure to update your list of beneficiaries regularly.
Keeping an accurate list of beneficiaries is essential when making numerous nominations. After your passing, the proper people will get the death benefit from your insurance if you take this step.
You can set up a trust
Assigning a trust as a contingent beneficiary will help guarantee that your life insurance earnings go to the persons you choose and not your estate, which will be subject to taxes and fees during probate
Using a trust as a life insurance beneficiary requires careful consideration, and you may consult with a lawyer or certified public accountant to help you get started.
Your Beneficiary Organisation Closes
People are increasingly giving life insurance money to charities instead of people. The charity you’ve selected to receive the money from your life insurance policy might go out of business after you make your bequest. Then who gets life insurance if beneficiary is dead? In this scenario, the profits will be distributed in the same manner as they are when a single beneficiary passes away, which means that the insurance will be included in the probate process as a component of your estate if there are no other beneficiaries listed.
What Should You Do If You Don’t Adjust Beneficiaries?
If you fail to assign a new beneficiary for your life insurance policy after your business closes, the proceeds will be distributed to your estate. However, the insurance would go to the contingent beneficiaries if the primary beneficiary was a charity and a secondary beneficiary, such as a family member or another charity.
Action to Take
- Notify your charitable organisation.
If you want to leave a sizable gift to a charity via your life insurance policy, they would prefer to know about it in advance. In this manner, the charity may collect the death benefit after you’re gone and perhaps inform you of any changes, such as a planned closure.
- Add a contingent beneficiary.
You may choose a different charitable organisation as the policy’s contingent beneficiary to ensure the money goes where you want it to.
What Happens If a Life Insurance Policy Has No Beneficiary?
Your life insurance policy’s primary and contingent beneficiaries must both agree to take the payout out of probate before it can be paid. A judge hearing your estate’s probate case will determine how it is distributed, which may include paying taxes and settling your obligations.
Life insurance payouts are often tax-free and made accessible quickly following a person’s death. The probate process might add months to the time it takes to distribute your estate’s assets.
Your state’s intestacy laws will divide your inheritance without a will. Your heirs would get your assets according to state intestacy rules. If you have no surviving relatives, the state will take your property.
If a beneficiary you’ve nominated passes away or cannot receive a benefit, you must update your beneficiary designations.
What happens if you die before your beneficiary?
If your main beneficiary passes away soon after you do but the life insurance claim has already been handled and granted, the proceeds will go to the primary beneficiary’s estate.
Because they were still alive when you passed away, your primary beneficiary will continue to be the receiver of the inheritance. However, the contingent beneficiary will get the death benefit if they make a claim even if the main beneficiary never did.
What happens if both you and your beneficiary die?
Suppose, you and your spouse both died in a vehicle accident, the death benefit will either go to the primary beneficiary’s estate or the dependent beneficiary.
Your life insurance policy’s death benefit will be paid to either your contingent beneficiary or your estate if it is not obvious who died first: you or your main beneficiary. If you have issues about the applicable legislation in your state, you should speak with an estate counsel.
Life Insurance Beneficiary Mistakes to Avoid
Life insurance has been acknowledged for a very long time as an effective means to care for one’s heirs and loved ones in the event of one’s passing. It should be easy to name beneficiaries on your insurance policy. You may be concerned about what happens if beneficiary does not claim life insurance? So here are some traps to avoid this question.
Not Naming a Beneficiary
Not choosing a beneficiary on your life insurance policy is a big error. However, more is needed to designate a spouse or kid as the beneficiary. Death might strike you and your spouse simultaneously, or your designated beneficiary could pass away before you do. If your beneficiaries are no longer living when you pass away, what happens? In that case, the insurance company will likely distribute the money to your estate, which might cause several complications.
Death Benefit Paid to Your Estate
Problems may emerge if your life insurance is paid to your estate. Probate may delay
your heirs’ insurance payouts. Second, your probate creditors may demand life insurance. Your creditors may use the insurance profits before your heirs get their portion.
The money may not go to your estate if you name priority, secondary, and final beneficiaries. The profits go to the secondary or alternative beneficiaries if the primary beneficiary dies before you. You may also specify a charity as a final beneficiary if the secondary one is dead.
Naming a Minor Child as Beneficiary
Minor beneficiaries may cause problems. Life insurers seldom pay minors directly.
Create a trust to assist a youngster with life insurance earnings. Then the trust administers and pays the insurance profits according to your trust document’s stipulations. Consult an estate attorney to determine the solution to this problem.
Per Stripes or Per Capita
That is the key distinction between per stripe and capita. If a beneficiary predeceases you, it is vital to specify how you would want the share to transfer on the insurance beneficiary selection form.
A beneficiary’s share may transfer to the following generation per stripe (by branch). Per capita (by the head) adds the deceased beneficiary’s part to the living beneficiaries’ shares to make them equal.
After reading this article I hope you’ll get all your desired answers. So, if a beneficiary dies before yours, you should immediately change the name to avoid all hassles. Moreover, you should add a contingent beneficiary so your family member can get your money after your death. I hope now you have no confusion when you purchase your insurance policy and you look into the rules of choosing beneficiary names.