Life insurance is typically a pretty easy policy to understand. In most cases, when the policyholder passes away, the named beneficiary receives the payout of the policy. However, if your beneficiary dies before you do, the payout of your policy may become more complicated.
Who Gets the Payout if Your Beneficiary Passes Away?
If you listed more than one beneficiary, the payout will simply be divided between the remaining people at the time of the claim. However, if you had a primary beneficiary listed, you had the option of listing a secondary one in this situation.
There are times when there isn’t a second beneficiary named, however. If this happens and there is no one named to take the payout of your life insurance claim, what happens? In these circumstances, the insurance payout will be sent to your estate.
While this may sound like a simple solution, it can complicate the process for your loved ones. First, it can take much longer for the funds to be available when they’re sent to your estate instead of a beneficiary. Plus, estate payouts will likely have estate taxes taken out, meaning the payout amount will become much lower.
If your payout gets sent to your estate, it becomes part of the overall total of your estate assets. Suppose you didn’t have a beneficiary for your policy, but you willed your estate 50-50 to your two children. Your estate before your insurance policy was totaled at $60,000, but with your payout, it becomes worth $160,000. That means your children will both receive $80,000 instead of the original $30,000 each.
Our lawyers can contest any life insurance beneficiary with a beneficiary dispute or interpleader lawsuit.
How About When There Are Multiple Beneficiaries, and One Passes Away?
As mentioned previously, if one beneficiary passes away, but there are many listed on the policy, the remaining beneficiaries will receive payments as planned. However, how those payouts happen can be different based on the type of policy.
With per capita distribution, the payout of your life insurance is divided equally between all of your beneficiaries. Therefore, if one of your beneficiaries passes away before you do, then the remaining ones will simply receive a greater percentage of the payout.
However, per stirpes distribution is different. In these policies, the heir of the beneficiary who passed away becomes eligible to receive the payout. For example, suppose you had listed your brother as one of two primary beneficiaries. Your brother passed away before you, leaving your spouse as the only living beneficiary. However, your brother’s daughter was his heir, meaning she would receive half of your insurance payout.
While life insurance policies are typically easy to understand, there are complications that may arise. However, if you end up not having a beneficiary for your policy at the time of your death, the funds will still make it to your estate.
If you have any concerns over these potentials, checking to see if you can add a secondary beneficiary to your policy is a good idea for added peace of mind!