Life Insurance With No Beneficiary: Who Gets the Benefits?

Naming a beneficiary is often part of buying life insurance. It's possible not to name a beneficiary, in which case death benefits are usually paid into the estate, opening it to creditor claims and potential probate delays.

By Mark Fitzpatrick

Edited by Rae Osborn

Updated: December 20, 2024

Advertising & Editorial Disclosure

Life insurance policies typically mandate that you designate at least one beneficiary, but various circumstances can lead to there being no beneficiary on a policy. In scenarios where no beneficiaries are named, the proceeds from the policy are generally transferred to your estate. Without a valid will, these funds and the rest of your estate might be subject to probate court proceedings. This process determines how your assets are distributed according to state laws.

For policyholders, incorporating options like per stirpes in life insurance could provide a solution as it ensures that the proceeds are distributed among the beneficiary’s heirs if unforeseen circumstances arise. Not all policies or insurers automatically offer this option, as availability can vary based on specific policy terms and applicable state laws.

TABLE OF CONTENTS

Life Insurance Beneficiary: What It Is
Common Reasons Why There's No Beneficiary on Life Insurance
What Happens if There's No Beneficiary on Life Insurance?
Can You Change the Beneficiary on Your Life Insurance Policy?
FAQ About Life Insurance With No Beneficiary

What Is a Life Insurance Beneficiary?

A life insurance beneficiary is the person or group picked to get the money when the person who bought the policy dies. There are several types of beneficiaries, each with a specific role:

1
Primary Beneficiary
This is the first beneficiary to get the death benefit. If this person is alive and can accept the money at the time of the policyholder's death, they get the whole amount. Often, this is a spouse, child or other close family member.
2
Secondary Beneficiary
Sometimes called a contingent beneficiary, this person is the backup. IIf the primary beneficiary has died before the insured or can't accept the money, the secondary beneficiary gets it. This ensures the money still goes to the right place, even if something unexpected happens to the first choice.
3
Tertiary Beneficiary
This is a third option, standing behind the primary and secondary beneficiaries. If both the primary and secondary beneficiaries can't accept the money, the tertiary beneficiary gets it. It's another layer of planning, making sure the policyholder's wishes are followed no matter what.
4
Minor Beneficiary
Sometimes, the policyholder wants the money to go to a child under 18. Life insurance left to a minor typically need a trust or a guardian to manage the funds until the child is old enough.
5
Charitable Beneficiary
Some people choose to leave their death benefit to their favorite charity. This can be a way to support a cause that's important to the policyholder, even after they're gone.

Choosing the right beneficiaries and understanding the different types helps ensure the death benefit goes to the person the policyholder wants. It's a key part of using life insurance for financial planning, supporting and continuing the policyholder's legacy.

Policyholders also have the option to incorporate per stirpes in life insurance arrangements. This can further clarify the distribution of benefits, particularly when a beneficiary predeceases the policyholder. Per stirpes in life insurance ensures that the deceased beneficiary's share is passed down to their heirs, safeguarding the policyholder's wishes across generations.

How to Choose Life Insurance Beneficiaries

Designating beneficiaries isn't just about picking names. It's about understanding what you want your life insurance to achieve and who you want to help. Here's a closer look at the key factors to consider:

Relationship to the Policyholder

Your connection to the beneficiary is often the starting point. While family members are common choices, friends, trusts or charities can also be named. Consider who you want to support or what causes matter most to you.

Financial Needs and Stability

Look at potential beneficiaries' financial situation. Do they need the money? Can they handle a large amount all at once? These questions can guide you to the right choice, making sure the death benefit helps without causing new problems.

Age and Health

Consider how old potential beneficiaries are and how healthy they are. If they're likely to have financial needs that last a long time, like a young child or a spouse with health problems, that might influence your decision.

Legal Considerations

If you're considering naming a minor child, you must plan carefully. Usually, a legal guardian or trust will manage the money until the child is old enough. This ensures the death benefit is handled in the child's best interest.

Employing strategies like naming multiple beneficiaries or adding per stirpes in life insurance further refines beneficiary designation, reflecting the policyholder's intentions.

Common Reasons Why There's No Beneficiary on Life Insurance

Life insurance policies are often tailored with beneficiaries in mind. Still, various circumstances can lead to a situation where there's no beneficiary on a life insurance policy. Here's a closer look at different scenarios where there's no beneficiary on a life insurance policy:

Beneficiary Dies Before Receiving Death Benefit

If the sole beneficiary of the life insurance policy is deceased and there's no contingent beneficiary, the money might go into your estate. This can lead to a legal process called probate, which can be costly and take time.

You and Your Beneficiary Die at the Same Time

This is rare, but if it happens, state laws and policy rules will decide where the money goes. It might not end up where you wanted, so it would help to have a backup plan.

If You Have Multiple Primary Beneficiaries and One Dies

If you picked more than one person to get the money, and one of them dies, the others usually get that person's share. You can set up different rules if you want, but you'll need to clarify that in the policy.

Beneficiary Dies Before You

If the sole beneficiary of a life insurance policy dies before the insured, the policyholder may choose a new one. Otherwise, the money might not go where you want it to. Keeping your choices up to date ensures the money goes to the right place.

No Beneficiary Named at All

Sometimes, people don't name a beneficiary at all. If no beneficiary is named in a life insurance policy, the proceeds will go into the estate, similar to when a beneficiary predeceases the insured. It can cause delays and might mean the money doesn't go where you want it to.

What Happens if There's No Beneficiary on Life Insurance?

If life insurance has no beneficiary designation, or if a primary beneficiary has died before the insured in a life insurance policy and no other beneficiary is named, the following can happen:

PAYOUT GOES TO THE ESTATE

When there's no beneficiary, the life insurance payout typically becomes part of the deceased's estate. This means that instead of going directly to a named individual or entity, the funds are added to the total value of the deceased's assets.

SUBJECT TO PROBATE PROCESS

As part of the estate, the life insurance payout may be subject to the probate process. This legal procedure involves validating the will (if there is one), paying off debts and distributing the remaining assets according to the will or state law. Probate can be time-consuming, often taking up to a year or more, and may involve legal fees and other costs.

POTENTIAL TAX IMPLICATIONS

While life insurance payouts are generally not subject to income tax, they may be included in the estate's value for tax purposes if no named beneficiary is named. Depending on the size of the estate and the applicable tax laws, this could result in a higher estate tax liability.

POSSIBLE CLAIMS BY CREDITORS

If the deceased had outstanding debts, creditors might have a claim against the estate, including the life insurance payout. This could reduce the amount available to heirs.

LACK OF CONTROL OVER DISTRIBUTION

Without a named beneficiary, the policyholder has less control over who receives the life insurance payout. The distribution will be determined by the terms of the will or, if there's no will, by state intestacy laws. These laws refer to states' rules for determining who will inherit a deceased person's assets.

POTENTIAL FAMILY CONFLICTS

The lack of a clear beneficiary may lead to disputes among family members or other potential heirs, especially if there are differing opinions about who should receive the funds.

What Is the Probate Process?

Probate is a legal process that occurs when there's no beneficiary or the beneficiary is deceased, and the life insurance payout goes into the insured's estate. This process can be slow and costly, involving court supervision to validate the will, pay off debts and distribute the remaining assets.

Probate laws vary by state, and the proceedings can take up to a year, delaying the funds that are typically available almost immediately. Understanding the probate process and its potential impact on life insurance benefits underscores the importance of careful planning and regular review of beneficiary designations.

Can You Change the Beneficiary on Your Life Insurance Policy?

Changing the beneficiary on a life insurance policy is not only possible but often necessary. Life is full of changes, and your life insurance policy should keep up.

Whether it's a marriage, divorce, the birth of a child or other significant life events, these milestones often require a reevaluation of your beneficiary designations. Regular reviews and updates to your policy ensure it remains aligned with your current wishes and family dynamics. It's about maintaining control over who receives the benefit and ensuring it serves your intended purpose.

Some policies might restrict changes, especially employer-sponsored ones, so it's essential to consult with your insurance provider or a financial professional. Keeping your beneficiary information current is a responsible step in managing your life insurance policy, ensuring that it continues to provide the support you intended for your loved ones.

How to Change Your Life Insurance Beneficiary?

Updating your life insurance beneficiary ensures that the benefits will be directed according to your current wishes, especially important if the beneficiary dies before the insured or in situations where an insured individual and the policy's beneficiary die at the same time.

Changing your life insurance beneficiary is a straightforward process, but following the correct steps is critical. Here's a guide to help you make this important update:

1
Obtain Necessary Forms
Start by contacting your insurance provider to get the right forms. They'll guide you to the specific documents you need for your policy. This step ensures that you're using the correct paperwork to avoid any delays or misunderstandings.
2
Specify New Beneficiary Information
Fill out the forms with the new beneficiary's details. Include their full name, relationship to you and other required information. Being transparent and accurate here helps make sure the money goes exactly where you want it to.
3
Submit and Confirm
Send the completed forms back to your insurance provider. It's a good idea to keep a copy for yourself. Then, follow up with the provider to confirm they've made the change. This final step makes sure that everything is in order.

FAQ About No Beneficiary Insurance

We answered some commonly asked questions about life insurance with no beneficiary to help you better understand how it works.

Can you have life insurance without a beneficiary?

Yes, you can have life insurance without naming a beneficiary, but it's generally not recommended. Without a named beneficiary, the death benefit may go to your estate, leading to potential legal complications and delays in distribution. Naming a beneficiary ensures the funds go directly to the person or entity you choose.

Who gets life insurance if the beneficiary is deceased?

If your primary beneficiary dies before you, the death benefit may go to a secondary beneficiary if one is named. If they can't receive the death benefit, it will go to a tertiary beneficiary. If there are no other beneficiaries, the benefit may become part of your estate, possibly leading to probate. Review and update beneficiaries regularly to avoid this situation.

What happens to life insurance with no beneficiary?

If there's no beneficiary named or all named beneficiaries are deceased, the life insurance payout typically goes to the policyholder's estate. This can result in a longer process to distribute the funds and may subject the payout to probate laws, which vary by state.

Who should be your beneficiary?

Choosing a beneficiary is a highly personal decision that depends on your individual needs, family dynamics and financial goals. It could be a spouse, child, friend, trust or charity.

Does life insurance go through probate?

Life insurance typically bypasses probate if there is a named beneficiary. However, without one or if the beneficiary dies before the insured, the payout enters the estate and is subject to probate. Probate is a legal process where a court oversees the validation of a will, the settlement of debts and the distribution of a deceased person's assets. It becomes necessary when assets are to be distributed under court supervision.

What happens to a life insurance policy when the owner dies?

The life insurance policy pays out to the named beneficiary when the owner dies. If a primary beneficiary has died before the insured without a contingent beneficiary, or an insured individual and the policy's beneficiary die together, the proceeds may be subject to estate handling and probate.

What happens if the beneficiary does not claim life insurance?

If the life insurance beneficiary does not claim life insurance benefits, the funds may eventually be turned over to the state's unclaimed property office. This varies by state. Once in the unclaimed property office, beneficiaries can still claim the funds by proving their entitlement.

What happens if the beneficiary dies before the insured?

If the life insurance policy beneficiary is deceased and the insured is still alive, the payout typically reverts to the estate unless a contingent beneficiary is named. That said, the policy owner can update beneficiary designations.

What happens if the insured and beneficiary die at the same time?

If the insured and beneficiary die simultaneously, the policy is treated as having life insurance without a beneficiary. The proceeds generally go to the insured's estate, subject to state laws.

About Mark Fitzpatrick

Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.

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