When you take out a life insurance policy, beneficiaries are named, so the insurance company knows who to pay the death benefit. Things can get very complicated if no beneficiaries are named or die before the insured.

What happens if no beneficiaries are named on a life insurance policy? What happens if your beneficiary dies before you? Or at the same time? Continue reading below as we answer every question you might have about life insurance with no beneficiaries.

Table of Contents:

What is a Beneficiary?

In a nutshell, a beneficiary is someone who gets all your stuff when you die. When talking about life insurance, it is who will get the insurance agent’s payout when you die. It can be a person such as a spouse or an adult child. It can also be a nonprofit organization or charity. You can list more than one beneficiary, and it doesn’t have to be a relative.

Some insurance companies will let you assign a percentage of the policy to different beneficiaries so you can split your policy evenly if you would like. Having a beneficiary will grant clarity to the insurance company as to who gets the money. It will speed up the payout process, and it will give you control over who gets the money when you pass.

Types of Beneficiaries

There are two main types of beneficiaries, primary and contingent (also called secondary). The primary beneficiary is the person first in line to get the payout from the insurance company. When naming your primary beneficiary, it is essential to have as much information as possible, such as legal name, birthdate, social security number, and residence place.

A contingent beneficiary would receive your life insurance if your primary can not be found or dies before you. Name contingent beneficiaries will require you to lay out how you want your policy to be passed on.

There is a third type of beneficiary, and it is tertiary. Tertiary means third, so the tertiary beneficiary would get your insurance policy if your primary and contingent passes away before you or can not be found. It is very uncommon to have tertiary beneficiaries named.

How to Choose Your Beneficiary

Financial guru Dave Ramsey says you should ask yourself these three questions when choosing your beneficiaries.

  1. Who do you support financially? They should be a beneficiary.
  2. If you plan to leave some of your death benefits for your children, who will be the trustee?
  3. Do you support any charities, nonprofits, or churches that should receive a part of your death benefit?

What Happens to Life Insurance If Your Beneficiary Dies?

There are many scenarios in which life insurance policies are not paid out to beneficiaries. This is mostly due to the fact the beneficiaries have passed.  Life insurance companies have included provisions into life insurance policies to help sort out the death benefit if there are no beneficiaries alive.

What Happens if Your Sole Beneficiary Dies?

Sometimes life takes us down an unexpected path, and your spouse or sole beneficiary dies before you do. If you pass before you change your beneficiary, your death benefit will be paid to your contingent beneficiary.

If you don’t have a contingent beneficiary listed, your death benefit will go to your estate. It will take longer for your death benefit to get to your loved ones, and there is a very good chance your death benefit will be assessed fees and taxes.

To prevent your death payout from going to your estate, keep your beneficiaries up-to-date with your insurance company. Most companies will allow you to make this update online or over the phone. Some companies require a paper form to be sent or faxed in.

If you change your beneficiary, be sure to give the insurance company as much information as possible. The data they will need includes a full legal name, birth date, and current address. Check to make sure this information is accurate on your policy. The beneficiaries will have to verify their identity before the insurance company will payout your death benefit.

What if You and Your Beneficiary Die at the Same Time?

Suppose you and your spouse die at the same time. For example, you both pass in a fatal car crash or a deadly house fire.  The death benefit could be paid out to your spouse’s estate or go to a contingent beneficiary. If there is proof your spouse lived minutes longer than you, then your death benefit would get paid out to your estate.

If there is proof that you lived longer, your death benefit will be paid to your secondary beneficiary. If you do not have a secondary beneficiary listed, it will go to your estate.

Suppose there is no proof of who lived longer. In that case, your insurance company will assume you outlived your primary beneficiary and pay it out to your contingent beneficiary if one is listed. If one is not listed, it will be paid out to your estate.

What if There Is No Life Insurance Beneficiary?

It is sporadic, but sometimes, people do not name beneficiaries on life insurance policies.  When this happens, life insurance death benefits are paid out to the deceased’s estate.

What Is an Estate?

An estate is all of someone’s belongings. These belongings include property, possessions, and investments. When the insurance company pays a death benefit, it becomes part of the estate.

The outcome of the estate is dependent on a few factors. Some of these factors include where you live, as different states have different laws. Another factor is if you have a will or outstanding debts. Probate is the process of administering your estate. A court generally oversees it. Once your estate reaches probate court, it could take a year or longer for your heirs to get your insurance payout. However, if you have debt, your heirs may never see your death benefits. Your estate is also subject to state and federal taxes, which means the amount of death benefit your heirs receive could be even smaller.

You Don’t Want Your Death Benefit Going to Your Estate

It may sound like a good idea to have your death benefit go to your estate, but it is not. There are many reasons you do not want your death benefit to go to your estate.  Life insurance payouts are tax-free and available in a timely fashion after your death. They are usually paid in a lump sum or as an annuity payment.

When your death benefit goes to your estate, state and federal taxes will be taken out.  As mentioned before, the probate court can take over a year to resolve, which will not immediately pay out your death benefits if there are any benefits left to pay after taxes and debt.

If there is still an inheritance after taxes and debt, and there is no will, your estate will follow your state laws to find an heir. If no living relative/heir can be found, the state will take your remaining assets.

Final Word on Life Insurance with No Beneficiary

To sum it up, if there is no beneficiary, your life insurance death benefit will go to a contingent beneficiary. If there is no contingent beneficiary, your death benefit will go to your estate. Once in your estate, your death benefit will be taxed and used to pay your debt. If no heir can be found, the state will get to keep your assets.

It is vital to keep your beneficiaries up-to-date on your insurance policy and even name a few contingent beneficiaries as well. Another way to ensure your assets, including your death benefit, goes to your family is to make sure you have a will. Having a will can speed probate court up and get your loved ones the things you have worked so hard for.

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One Comment

  1. Richard R Sanderson CLU ChFC

    Not so fast. I agree that under the law in the absence of a named beneficiary, proceeds revert to the estate that apparently isn’t honored always by the carrier.
    I a, going through this with my Dad’s claim with Transamerica. This was a policy ai did. It sell, he bought on his on for burial. It was $2,500 death benefit. My Mom was beneficiary, and died 18 years ago. I am named Executor, so filed with death certificate, death certificate on my Mom, copy of the will, obit, etc.
    Transamerica is requiring I probate the estate to file and have the estate get the proceeds. They are saying that unless I probate the estate ($1000 net worth not counting the life insurance) at a cost of $500, they would not honor the will since technically I wasn’t the beneficiary.
    After the first filing, I was required to have each sibling complete a beneficiary from. Today after a long discussion I was told they were sending checks to each child. I quoted Georgia insurance law. Doesn’t matter.
    I have to collect those monies to pay final expenses. Sweet. My brothers no problem. My sister, maybe a problem. Since I have already paid for everything out of my own pocket, if my sister balks I will sue Transamerica in small claims court and make them send a representative. It’s not even the money. This is small’s the point of the thing. I needs this paid to the estate and the law should have mandated that.
    I have told them I will not recommend them to anyone. And I retired from Nationwide as VP Sr Relationship Manager. One of my relationships was setting up our relationship ship with World Financial Group, one of Trans largest distributors. Once this plays out anybody working with Trans needs to be aware of this. Had I known my Dad owned this contract I would have fixed the problem before it happened. Too late for that.

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