Life insurance beneficiaries are entitled to the proceeds of a policy when the policyholder dies. However, this does not address a rather common problem which is what happens to the proceeds due to life insurance beneficiaries that are deceased? This depends on numerous factors.
Understanding Life Insurance Beneficiaries
Generally, when people take out a life insurance policy, they are asked to include the name of one or more beneficiaries. In some instances, there are primary beneficiaries and contingent beneficiaries. Spouses may elect their other spouse as a primary beneficiary and their children as contingent beneficiaries. However, in some cases, there may only be one beneficiary listed. This can create issues in the event of life insurance beneficiaries that are deceased. The correct answer to this predicament takes on several forms such as:
Beneficiary dies before the policy holder - in the event that a sole named beneficiary dies before a policyholder, the proceeds from the life insurance policy would revert to the estate of the policyholder and be handled the same way as any other assets of the estate according to the terms of their will (if one exists);
Beneficiary dies after the policyholder - in the event that the sole beneficiary of a life insurance policy dies after the policyholder, the proceeds from the policy would be turned over to the estate of the beneficiary;
Multiple primary beneficiaries, one deceased - if there were more than one primary beneficiary (not common) then the same rules would apply as listed above. The portion of the policy that belonged to the deceased beneficiary would pass as per the above stated requirements;
Beneficiary dies with named contingent beneficiaries - if a policy holder names contingent beneficiaries, and the primary beneficiary is deceased, the proceeds from the policy would be payable to the contingent beneficiary (or beneficiaries).
Requirements for the Beneficiaries of Life Insurance
When filling out a life insurance policy application you will generally be asked only for basic information on beneficiaries. You may be asked their name, age, date of birth and their relationship (if any) to you. For those who are naming a spouse as primary beneficiary and their children as contingent beneficiaries, there may be a requirement to provide a custodial name in a will for any minor children. This is due to the laws that prohibit minors from receiving proceeds of IRA accounts and life insurance policies. When dealing with life insurance beneficiaries that are deceased, there are required documents that must be provided to the insurance company to confirm the death of both the policyholder and the beneficiary . These include:
Death certificates - the surviving beneficiary (or beneficiaries) will be required to provide death certificates for both the policyholder and the beneficiary. This is to confirm which of the decedents passed first. In the event that the beneficiary died prior to the policyholder, then there may be other documents required;
Certified will - whether the deceased beneficiary died before or after the policyholder, there may be a requirement to supply a certified copy of a will. If the policyholder outlived the beneficiary, then the will would be that of the policyholder. If the beneficiary outlived the policyholder, the will of the beneficiary would be required;
Probate documents - if the will has already been through probate, certified court documents may be requested by the life insurance company. Which probate documents may be needed are determined by the order of the deaths (e.g., as stated in the will section).
Beneficiaries of an estate or those who are concerned about the potential legal problems associated with life insurance policies where the beneficiary is deceased are encouraged to speak with the insurance company as well as a probate attorney for additional guidance
Resources
Sources:
- Life Insurance In Depth - Naming Your Life Insurance Beneficiary https://www.lifeinsuranceindepth.com/beneficiary.html
- USA Coverage - What Happens if the Beneficiary of a Life Insurance Policy is Deceased? https://www.usacoverage.com/life-insurance/what-happens-if-the-beneficiary-of-a-life-insurance-policy-is-deceased.html
- Author’s Personal Experience
Image Credits:
- Life Insurance Policy purchased from istockphoto.com/Devonyu
- Death Certificate: Public Domain via wikimediacommons.com/Hugh Cottrell
