What happens when the beneficiary of a life insurance policy dies ahead of the one insured?


When the one insured in a life insurance policy dies the proceeds go to the named beneficiary. If the beneficiary dies ahead of the insured, the proceeds will still be paid out.

Who becomes the beneficiary of a life insurance policy if the beneficiary is dead?

The insurance company will determine if there are primary co-beneficiaries named in the policy. If there are, the proceeds will be divided among these co-beneficiaries. When one of the co-beneficiaries dies, the remainder of the proceeds will be paid out to the surviving beneficiaries.

But what happens if all primary co-beneficiaries die ahead of the one insured?

The insurance company will check if there are secondary beneficiaries. These are individuals who will get to receive the proceeds when all primary beneficiaries are deceased.

For example, under a policy the wife is named the primary beneficiary and a son is named as secondary beneficiary.  The husband may have wanted that the son receives the proceeds only in the event the wife dies ahead of him. Contrast this to having the son named as co-beneficiary wherein he and the wife would both be awarded with the death benefit.

What happens when both primary and contingent beneficiaries die?

In case all beneficiaries have died, the proceeds will be paid to the insured individual's estate. It will pass through probate and will be subject to procedures and charges determined by court.

Usually, distribution of the money will be in accordance to the insured individual's will. If the will does not contain specific instructions as to how the proceeds will be distributed, it will follow the laws of the state or the court will make that decision.

Do life insurance proceeds go to the estate or to the next of kin?

The beneficiary named in the policy will receive the proceeds regardless whether he or she is next of kin or not. In case the beneficiary is deceased, the insurance company will look for primary co-beneficiaries whether they are next of kin or not. In the absence of primary co-beneficiaries, secondary beneficiaries will receive the proceeds. If there are no living beneficiaries the proceeds will go to the estate of the insured.

Can the next related person be a contingent beneficiary if not named?

No. Contingent beneficiaries have to be named in the policy. It is therefore important to name indicate who are the primary and secondary or contingent beneficiaries. Not naming them will cause the proceeds to be passed on to the insured individual's estate which will be subject to probate and therefore incur charges and delays related to estate settlement.

By naming beneficiaries, the probate process is bypassed. Furthermore, creditors can make claims on estate proceeds. In majority of the states, proceeds from life insurance policies are exempted from creditors claims when beneficiaries are named in the policy.

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