What Happens to Life Insurance With No Beneficiary?

Everything you need to know if you do not have a beneficiary to name.

Life insurance is essentially there to cover your funeral costs after your death and to replace your income for any dependants you have. It provides your beneficiary with a death benefit to help financially support them after your death.

But then the question arises, what happens to life insurance with no beneficiary? Let’s explore that below.

Who gets Life Insurance Payout?

A life insurance payout is given when the insured party dies. The beneficiary is then required to file a death claim with a copy of the death certificate. The insurance company then has 30 days to review the application and then either accept it, deny it or ask for additional information. Death claims are usually accepted but if an insurance company denies them, it usually states why.

What is a Beneficiary?

A beneficiary is the person you name who will inherit the lump sum amount that the insurance company will pay out in the event of your death.

Who can be the Beneficiary?

There is a common misconception that the beneficiary you name can only be your spouse. However, that is untrue. There is no life insurance beneficiary rule for spouses to be named. Who you want to be your beneficiary is completely up to you. It can be a blood relative, a spouse, a friend or anyone you want.

When deciding who the beneficiary from your life insurance should be, you should keep in mind a few factors:

  1. Who would benefit from your money the most?
  2. Who depends on your income the most?
  3. Do you wish to donate to a charity?
  4. Is there anyone around you who is in financial need?

These are a few questions you should ask yourself when deciding who to name as your beneficiary. Usually, individuals tend to name people who depend on their income as their beneficiaries so that they are taken care of financially after the insured’s death.

Who can Change the Beneficiary on a Life Insurance Policy?

Life insurance policies are usually written quite a few years in advance. Which is why it can be difficult to assess who will be important to a person 30-40 years down the line. That is why people can often feel the need to change the beneficiary on their life insurance policy.

You can change the beneficiary by calling your insurance company and requesting a “Change of Beneficiary” form. All you have to do then is fill it out and submit it. The insurance company will change the policy in 24 hours.

Besides you, another person of authority like the power of attorney can change the beneficiary on your life insurance policy. However, this would be done on the principal’s behalf, which will be you. So essentially, only you have the power to change the beneficiary in a life insurance policy and someone else can only do so on your behalf, if you give them the power.

What Happens to Life Insurance With No Beneficiary?

There are a few instances where the policyholder is their own beneficiary. These are insurance policies with a “own life-own benefit” provision that does not allow the policyholder to name a beneficiary.

In cases like this when there is no named beneficiary, the payout from the insured’s death will go to the estate and will be distributed as per the will of the insured. However, this is only possible if a will has been set up.

Life insurance vs. will:

If someone has been named the main beneficiary of the state in the insured’s will, they will receive the payout from the life insurance policy. However, if there is no will and no named beneficiary, all funds will be paid into the estate of the policyholder and then distributed by the courts. If the insured left behind a spouse or children, these people will be considered the ‘next of kin’ and are likely to receive all of the payout.

Moreover, if the primary beneficiary named on the insured’s policy has passed away, the funds will be paid to a contingent beneficiary.

A contingent beneficiary is the person who has been named next in line after the primary beneficiary. This secondary beneficiary is named by you when you purchase the life insurance policy. You sign their name in the agreement, acknowledging the fact that this person will inherit your life insurance payout in case your primary beneficiary was to pass away. People usually name their children or younger family members as their contingent beneficiaries. But it is completely up to you on who you want to name as your secondary beneficiary.

It’s a good idea to have secondary beneficiaries in case you and your primary beneficiary, like your spouse, are in an accident together and pass away. This gives you a proper plan as to who will inherit the money.

However, in case there has been no contingent beneficiary named, the funds from the life insurance policy will be paid into the estate and then distributed among the policyholder’s surviving family.

What to do now?

If you are purchasing life insurance with no beneficiary, you should make a will so that you can divide your funds accordingly yourself. It’s only you who would know better about who needs what more. You can take care of your spouse after your death, take care of your children’s college fees and even look out for your elderly parents.

Having a plan and making sure your family and loved ones are well taken care of before you leave is always fruitful. Talking about death can never be easy but it’s the sort of uncomfortable things we cannot avoid in life. So, unless your policy does not allow you to name a beneficiary in which case a will would be the way to go, name a primary and contingent beneficiary to ensure that your family will not have to stress about any financial matters after your death.

Charles Bains

Charles Bains

Charles Bains started his insurance career as a marketing intern before pounding the pavement as a commercial lines agent in Orlando, FL. As an industry journalist, his articles have appeared in a variety of trade publications. His insurance television career, short-lived but glorious, once saw him serve as the expert adviser on an insurance-themed infomercial (yes, you read that correctly). Having recently worked for various organizations, coupled with his broader insurance knowledge, Charles is able to understand our client’s needs and guide them accordingly. He is a gem for Insurance Noon as his wide area of expertise and experience have been beneficial in conducting further researches to come up with solutions and writing them in a manner which is easy for everyone including beginners to comprehend.

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