What happens to life insurance proceeds if the policy beneficiaries pass away before the insured person?

Learn about beneficiaries passing before insured.

People plan for their eventual death by purchasing a life insurance policy so that when they die they can financially take care of their family and other beneficiaries. The whole point of a life insurance policy is for the beneficiaries of the life insurance policy to receive a benefit when the insured passes away. For this to happen, the insured has to name beneficiaries on the life insurance policy. Unfortunately, things don’t always go to plan.

When an insured names beneficiaries on their life insurance policy, they can name people as primary beneficiaries and secondary beneficiaries. Primary beneficiaries are people that are first in line to receive the life insurance policy’s death benefit when the insured passes away. It is common for a spouse, significant other, or close family relation to be designated as a primary beneficiary. Secondary beneficiaries are second in line to receive the death benefit if something happens to the primary beneficiaries. Secondary beneficiaries are commonly children, family members, or entities.

Unfortunately, there are some situations where the insured only names a single primary beneficiary. This can create problems when that sole beneficiary passes away before the insured. The main problem is that there are no other primary beneficiaries or secondary beneficiaries for the life insurance death benefit to be paid out when the insured passes away. So, what happens with the life insurance death benefit payout in this type of situation?

If there are no beneficiaries named in the life insurance policy, the death benefit goes into the deceased insured’s estate. An estate is the total collection of all the deceased person’s assets, including the death benefit in this situation. When the death benefit goes into the deceased person’s estate, it will have to go through the probate process. Generally speaking, probate is a legal process where courts will inventory the deceased person’s assets, ensure that all taxes and debts are paid, and then distribute the estate according to any valid will or law if there is no will. The probate process can have negative effects on a life insurance policy’s death benefit. For example, the probate process can take a long time, so it could take a significant amount of time for the insured’s remaining family members to receive any part of the death benefit. Also, the death benefit will likely be subject to estate taxes, which may decrease the total amount of the death benefit. Finally, when the life insurance policy does not provide any clear instructions on who should be paid because there are no beneficiaries, the wrong person can be paid in the probate process. If this happens, a person that might have been an intended beneficiary, but that was never officially designated as a beneficiary, might have their claim denied by the insurance company.

 

Naming a primary beneficiary on life insurance policies is necessary if the insured and beneficiaries want to avoid the confusion and delays associated with the probate process. It is similarly important to name secondary beneficiaries in case the primary beneficiary passes away and the insured intends for “back up” beneficiaries to receive the death benefit when the insured passes away. Simply adding beneficiaries to a life insurance policy can help avoid a lot of trouble in the future…