What Happens to Life Insurance With No Beneficiary?

Life insurance policies provide a financial benefit to the people left behind when someone passes away. This money is available to cover burial expenses, pay off debt, replace lost income, and more. But what happens to life insurance with no beneficiary? Where does the money go and who gets it? Continue reading to learn more about this important topic. Need help managing your life insurance? Consider working with a financial advisor.

Life Insurance Benefits

People buy life insurance to protect against the financial impact of someone dying. The lost income from a loved one and the added expenses of burial and replacing their household contributions devastates some families. These are a few of the most common reasons why people buy life insurance:

Replace lost income
Cover college expenses
Pay off mortgage and other debt
Create an endowment
Donate to charity
Buy out a business partner

Life Insurance Beneficiaries

When you purchase a life insurance policy, you’ll fill out the beneficiary information so that the insurance company knows who to pay when you die. Generally, you’ll provide a primary and a secondary beneficiary.

Primary Beneficiary

The primary beneficiary is the first person in life to receive money when you pass away. You can name anyone that you’d like as a beneficiary, but you generally need to have some relationship with them. For example, you can choose a spouse, parent, child, family member or friend. Some policy owners name a charity, foundation or company as the beneficiary of their policy.

Additionally, you can name multiple people as primary beneficiaries. The death benefit can be split evenly or in any percentage that you like.

Secondary Beneficiary

When one or more primary beneficiaries are unable to accept the death benefit, the proceeds pass on to the secondary beneficiary. A secondary beneficiary is also known as a “contingent beneficiary” because they are contingent on the primary beneficiary passing away before the insured person. For example, if a husband names his wife as his primary beneficiary, but she passes away before him, the secondary beneficiaries would receive the death benefit.

Multiple levels of beneficiaries typically prevent a policyholder from dying without an eligible beneficiary. However, life doesn’t always cooperate the way that we’d like it to. So, what happens to life insurance with no beneficiary?

Beneficiaries Pass Away Before the Insured

If the primary beneficiary passes away before the insured does, then the death benefit goes to the secondary beneficiary. The death benefit is not a part of the estate of the primary beneficiary.

Primary Beneficiary Dies Before Collecting the Life Insurance

What happens if the primary beneficiary is alive when the insured dies but passes away before receiving the life insurance proceeds? In this case, the money is part of their estate and gets distributed according to their estate plan.

Insured and Primary Beneficiary Die at the Same Time

Simultaneous death of the insured and the primary beneficiary complicates who receives the money from a life insurance policy. Generally, the insurance industry considers it a simultaneous death if you die within 24 hours of each other.

In most cases, the life insurance company will look at the time of death for both parties. Even if one only lived a few minutes longer than the other, that could affect the payout. If the insured dies first, the money goes to the primary beneficiary. If the primary died first, then the money would go to the secondary beneficiary.

One Beneficiary Dies But the Other Is Alive

When a life insurance policy names multiple beneficiaries, it is possible that one may die before the insured. Each beneficiary receives their percentage of the death benefit. For example, say you have three siblings and all are equal beneficiaries. If one passes away before you, then the remaining two siblings would each get one half (known as “per capita“).

If you want the estate of each beneficiary to receive their share, then you would name them as “per stirpes” beneficiaries. In this instance, each sibling would receive one-third of your death benefit. Since one passed away before you, their estate would receive their one-third share.

No Beneficiary Listed

Most life insurance companies require you to name at least one beneficiary on your life insurance application. However, mistakes are made and a blank beneficiary form slips through the process. Without a named beneficiary, your life insurance proceeds become part of your estate. The life insurance proceeds get distributed accordingly, along with the rest of your assets.

Your estate may need to go through probate, which often charges substantial fees and could take a long time before reaching your heirs. Additionally, the death benefit may now be subject to state and federal taxes. If the probate court cannot locate any living relatives, the state may take all of your remaining assets.

The Bottom Line

Purchasing life insurance is an inexpensive way to create an estate for your loved ones in case you pass away. It is important to name primary and secondary beneficiaries on your policy to ensure that they receive the money. When life insurance does not have a beneficiary, the death benefit is part of your estate. Without a living trust, your estate goes through probate and is subject to fees, taxes and delays.

Tips for Your Life Insurance Policy

Determining how much life insurance you need can be a challenge. Many investors choose a death benefit high enough to replace their income, cover burial expenses and pay off debt. Additionally, covering college tuition and other goals may also factor into the death benefit. Our life insurance calculator helps you determine how much life insurance you need with a few simple questions.
A financial advisor can help you get the right life insurance policies. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.