You faithfully paid your life insurance premiums for decades. You did the responsible things – making sure your funeral expenses would be paid for, that your loved ones would be covered financially, that life would go on comfortably for your children when your time is up. But what would happen if you and your policy’s beneficiary both suddenly died? Or what happens if your beneficiary died shortly after you did?
A beneficiary is a person whom you designate to receive your life insurance proceeds when you die.
Each year, hundreds of millions of dollars in life insurance benefits go unclaimed for various reasons. But there are ways to prevent your death benefits from ending up in state coffers as unclaimed funds or in probate.
According to insurance experts, you need to be sure you have two levels of beneficiaries – a primary and secondary (sometimes called a “contingent”).
“If the primary beneficiary is not alive when the insured dies, the policy may have a contingent beneficiary,” says Steve Weisbart, chief economist for the Insurance Information Institute.
Weisbart says that a primary and contingent beneficiary can be designated when the policy is written.
“Take me, for instance,” Weisbart says. “I have life insurance and my wife is my primary beneficiary and my two kids are my contingent beneficiaries.”
It’s important to remember that the contingent beneficiary cannot claim death benefits unless the primary beneficiary dies at the same time or before the insured dies. If the primary beneficiary dies after the insured, the benefit goes to the primary’s estate.
“If there is no primary or contingent beneficiary, the death benefit is paid to the owner of the life insurance policy, and that may not be the person whose life is insured,” Weisbart says.
When both the primary and contingent beneficiaries die before the insured, Weisbart says, the life insurance benefits go to the estate of whoever owned the policy, but that could vary by state.
As for the fine details and intricacies of how the legal system handles insurance questions, FindLaw.com provides a handy list of probate codes and laws in all 50 states.