What Happens to Life Insurance With No Beneficiary?

Typically, life insurance policies are straightforward: once the insured dies, the insurance company pays the death benefit to the primary beneficiary, whether it is a person or an entity. However, things can get very complicated when it is not clear to whom the proceeds will go. Such situations can cause significant changes in how the proceeds are distributed and may impact the claim that various beneficiaries have to the death benefit. If you are facing such issues, you should seek legal counsel. 

What Happens if the Sole Beneficiary Dies?

Life insurance companies must pay the proceeds to those listed as beneficiaries. It can be anyone – from the insured’s spouse or ex-spouse to adult children, siblings, business partners, charities, or a trust. At the same time, the insured can list multiple beneficiaries.

Beneficiaries Passed Away Before the Insured

Besides the primary life insurance beneficiary, they can also name a contingent or secondary beneficiary. They will receive the life insurance payout if the primary beneficiary cannot be found, dies before the insured, or simultaneously with the insured. 

Primary Beneficiary Dies Before Collecting the Life Insurance

However, if the primary beneficiary of a life insurance policy dies and there is no secondary beneficiary listed, the policy is viewed as having no beneficiaries listed.  Without a listed beneficiary to claim the death benefit, the death benefit is paid out to the estate of the deceased. If this is the case, it can take significantly longer for the proceeds to get to the insured’s family, not to mention, that they will, most likely, be subject to estate taxes. 

What Happens to Life Insurance with No Beneficiary Named?

If the insured dies and there is no life insurance beneficiary listed on the policy, the death benefit will go to the estate of the deceased insured. The estate refers to someone’s belongings, including any property, possessions, and investments.

What happens to the estate depends on various factors, including where the insured lived, whether they had a will or any outstanding debts. The process of administering one’s estate is called probate and it is overseen by a probate court.

The process can take up to a year or more. When life insurance payout goes to the estate, it becomes part of the total estate assets and is administered and distributed following the estate planning documents. 

Understanding With an Example

Let us suppose that you are not listed as a beneficiary on the life insurance policy, but are one of the beneficiaries of the estate, designated to receive 50% of the total estate assets. If the primary beneficiary died in an accident alongside the insured, the life insurance payout will be incorporated in the total estate assets, out of which 50% belong to you.

However, as part of the estate, the life insurance death benefit is now subject to state and federal taxes and will be used to pay down any debts before it is distributed to the insured’s heirs. This means that you will receive a smaller amount than what you would otherwise get if you were a life insurance beneficiary. If there are any benefits left to receive.

If the insured died without a will (also known as “intestate”), their estate is controlled by the state laws where the insured lived. If no living relative is found, the state will take the remaining assets.

The Bottom Line

Life insurance policies without beneficiaries often lead to beneficiary disputes and family feuds, which are one of the most common reasons life insurance companies deny claims. Relatives, friends, and even creditors file claims for the same death benefit, claiming they are entitled to the life insurance proceeds. 

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What Are The Difference Between Annuity And Life Insurance?

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Disclaimer: This article is issued in the general public interest and is meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive and should research further or consult an expert in this regard.