Articles Tagged with: primary beneficiary deceased

Can you have two primary beneficiaries on a life insurance policy?

Yes. You always should name multiple beneficiaries on a life insurance policy. Why? Read on to find out.

What is a Beneficiary?

When taking out a life insurance policy, the policyholder must name one or more “beneficiaries” who will receive the death benefit if the insured passes away while covered by the policy. Policyholders have multiple options for choosing beneficiaries:

What is the difference between primary and contingent beneficiaries?

What is a Primary Beneficiary designation?

The “primary beneficiary” on a life insurance policy is the first in line to receive the death benefit.

What is a Contingent Beneficiary designation?

A “contingent beneficiary” or “secondary beneficiary” may receive the death benefit in place of the primary beneficiary if specific, predetermined provisions are satisfied. In most cases, a contingent beneficiary will only receive the death benefit if the primary beneficiary is deceased or unreachable. For policyholders, listing a contingent or secondary beneficiary can act as a safeguard in case something happens to the primary beneficiary (see our blog post about what happens to death benefits when a life insurance beneficiary is decesased).

Can you have multiple beneficiaries on life insurance? Can there be more than one primary beneficiary?

Yes. If the policyholder would like to name multiple beneficiaries to a single policy, he or she can specify any number of “co-beneficiaries.” When multiple beneficiaries are listed, insurance companies can split the same death benefit amongst them. Policyholders may specify who receives what percentage of the death benefit, or they may request that it be distributed evenly.

It is possible to designate multiple primary co-beneficiaries, as well as multiple contingent co-beneficiaries. For policies with multiple primary beneficiaries, the contingent beneficiary or beneficiaries will likely only receive the death benefit if none of the primary beneficiaries are reachable. If this happens to be the case, each contingent beneficiary will receive their designated portion of the death benefit.

However, legal debates frequently arise when multiple parties claim to be the validly named beneficiary to a life insurance policy (see our blog post about challenging a life insurance beneficiary designation). If you were the beneficiary to a life insurance policy yet your claim was unlawfully denied, don’t hesitate to contact an experienced life insurance beneficiary lawyer.

November 17, 2017

What happens to the benefits for a life insurance policy when the beneficiary is deceased?

What happens if a life insurance beneficiary is deceased?

When a policyholder passes away, his or her life insurance benefit is supposed to go to a predetermined beneficiary, often a spouse, family member, or close friend. But what happens when the life insurance beneficiary dies first, the designation is no longer valid, or if he or she dies while the claim is under review?

Often, this situation can arise when the policyholder designates his or her spouse as primary beneficiary but divorces years later; in some states, the ex-spouse will be “automatically revoked” from the policy, after which the policyholder might fail to designate a new primary beneficiary in their place.

Life Insurance Beneficiary Deceased or out-of-date beneficiary

What happens when there is no life insurance beneficiary? If the primary beneficiary of a death benefit is deceased/invalid, there are several possible outcomes based on the policy’s details. If the primary beneficiary of a policy is deceased, invalid, or cannot be reached, the death benefit will go to a named secondary beneficiary or contingent beneficiary. If there are multiple “co-beneficiaries” on a policy and one of them has passed away, the death benefit will be split among the remaining co-beneficiaries.

This raises the question: What if both the primary and secondary beneficiary on a policy are deceased/invalid? Or what if all the policy’s co-beneficiaries have passed away? What is the sole beneficiary of a life insurance policy dies before the insured?

In these cases, the death benefit proceeds are payable to the insured’s estate, i.e. his or her total assets, unless the terms of the policy state otherwise. This may seem fine at first glance; the estate is usually transferred to the deceased’s next of kin by default.

However, this may be disadvantageous on several levels. If the insured was in debt at the time of death, his or her estate will be used to pay off any outstanding debts and can be subject to estate taxes. Conversely, if a beneficiary receives the insured’s death benefit directly from the insurance company, the beneficiary will receive the full amount without taxation and regardless of the insured’s debts. Many states exempt a specified amount of life insurance death benefits (e.g. up to $50,000) from being subject to debt/tax collection even after being transferred to the policyholder’s estate, but this depends on the laws in your state.

Generally, if there are multiple primary beneficiaries and one dies, the death benefit passes to the remaining beneficiaries.

Beneficiary dies before claim is approved

If a policy’s primary beneficiary is alive at the time of the policyholder’s death but dies before the claim is processed or paid, the death benefit will be transferred to the beneficiary’s estate, rather than the insured’s. This can lead to the same disadvantages as the above situation, such as the possibility of being absorbed into the beneficiary’s outstanding debts or being subject to estate taxes. Unlike with the policyholder’s estate, the aforementioned state-by-state exemptions from debt/tax collection do not apply once the benefit is transferred to the beneficiary’s assets.

The big takeaway is that it is imperative to keep beneficiary designations as up-to-date as possible. Don’t be left wondering what happens if your beneficiary dies before you, or if your beneficiary is out-of-date or otherwise invalid.

Life insurance is usually advertised as a “safe” investment, free from taxes and unforeseen deductions; however, if a policyholder’s beneficiary is deceased or cannot be located, the death benefit may be treated the same as any other asset and consequently be subject to debt and tax collection. Designating a secondary beneficiary (or contingent beneficiary) can help provide an effective safeguard in case something happens to the primary beneficiary.

Additionally, these sorts of situations can spur legal debates over who is rightfully entitled to a policy’s death benefit. If you believe your life insurance claim has been wrongfully denied, it is prudent to get the advice of a trusted legal authority.