At first glance, a life insurance policy would seem simple: If your death occurs while you have a policy in place, the person you name as the beneficiary receives the death benefit. What isn’t so simple, however, is what happens to outdated policies and policies that list a beneficiary who is also deceased.If both you and your beneficiary die in an auto accident, for example, what would happen to all of the money? What would happen if you are still alive, but your beneficiary has passed on?

If Your Life Insurance Beneficiary Dies Before You Do

If you have named a person as your beneficiary for your life insurance policy who happens to pass on before you do, it is crucial that you update your policy and choose a new beneficiary as soon as possible.If your policy goes without updating, the benefit amount from your policy will go to your estate, which is basically a collection of all of your belongings – your investments, possessions, property, and the like. The benefit from your policy will just be added to the sum value of your estate.

Further than that, if you do not have a will that designates how your assets and estate are handled, the state will get involved, which can extend the process of dealing with what happens to your estate – including that amount from your life insurance policy. If you don’t update your beneficiary, and the benefit goes to your estate, it will be tied up for much longer than if it were simply paid out to someone.

If Your Beneficiary Dies Before Benefits Are Paid

Suppose you pass on, and your life insurance beneficiary is alive when it’s determined that he or she will be paid benefits from your policy. Unfortunately, however, your beneficiary dies before the money is actually paid out. What happens then?

In this scenario, the benefit from your insurance policy will go to the estate of your beneficiary instead of to your estate. It will need to be dealt with according to your beneficiary’s will, or dealt with by the state, which again could tie up the entire process of your benefit being paid.

If You Have Multiple Beneficiaries, But One Has Died

Many people name more than one person as their life insurance beneficiaries on their policies; what happens if one of those people dies? If you don’t update your policy, your death benefit will be split evenly between the beneficiaries who are remaining. There are a couple of things you’ll want to consider and be aware of, however:

    • 1. Do you live in a community property state? If so, both spouses have equal stake in earnings and property during the marriage, which includes life insurance. This means your beneficiary, if it isn’t your spouse, may not get the entire amount, because in a community property state, your spouse will be entitled to half of that benefit.

2. Consider naming secondary (also called contingent) beneficiaries on your policy. If something unexpected happens that results in your death along with your primary beneficiary’s death, a the secondary beneficiary(s) will receive the death benefit.

3. Consider designating your benefit per branch of the family; for example, if your two daughters are your beneficiaries and one of them dies, your death benefit will normally fully go to the daughter who is still living. However, you can designate that the deceased daughter’s half will go to her children instead.

As you can see, it’s important not to only choose a beneficiary of your policy, but also to consider what may happen if that person were to die before being paid out benefits. Whether you designate a secondary beneficiary, distribute your benefits per branch, or you have another plan to put in place, you always want to keep your policy up to date. For more information or for help with your life insurance policy options, contact us at – we can help!