Suffice it to say that, for all sorts of reasons, the person who is insured might outlive the person who they’ve named as a beneficiary. One spouse dies before the other, or parents outlive their children. It is, of course, sad, but it inevitably happens.
The question, then, is what happens to the life insurance policy? We have your answers.
The policy is paid to the contingent beneficiary
What is a contingent beneficiary? You can learn more here, but it’s pretty much what you think: A second (or third, or thirty-third) person named on your policy, who will be the beneficiary in case something happens to the first (or second, or thirty-second) person you’ve listed.
In these cases, it’s pretty straightforward. The contingent beneficiary files a claim just like the initial beneficiary would’ve done.
If there is no contingent beneficiary, it’s paid to the owner’s estate
While this obviously isn’t ideal, it’s not as though the insurance company is taking a match to the policy (or making arbitrary decisions). Basically, the money is treated like anything else that hasn’t been explicitly written down (furniture, for example, or your uncle’s collection of rare polka LPs). The policy would be paid to the person named in the insured person’s will; if there’s no person, it will go to the estate, and laws vary by state as to who will get that.
But things can get complicated …
The above scenarios assume a relatively orderly sequence of events. Here are some less common, though by no means rare, situations.
1. The beneficiary dies shortly after the insured person does.
It could be a case of what some call “broken-heart syndrome,” where mom passes away a month after dad does. Or it could be a case where, both spouses were in a fatal car accident, but one spouse dies a few weeks after the first spouse does. In these cases, the policy would be paid out to the first beneficiary, and then that person’s insurance policy would be paid out to their beneficiaries.
2. The beneficiary dies at the same time as the insured person.
Take the car accident example from above, but instead of one spouse passing away a few weeks before the other, both spouses die simultaneously. This is termed a “simultaneous death,” and applies any time a beneficiary dies within 24 hours of the insured. (For obvious reasons, “simultaneous deaths” do not need to occur at exactly the same moment.)
In this case, it will vary state by state, because it’s driven by state law (rather than the insurer’s policy). It might move on to the contingent beneficiary or it might move into someone’s estate.
3. The beneficiary is incapacitated by the time the insured person dies.
In that scenario, the insurance company will defer to the incapacitated person’s power of attorney, and help them get the appropriate documentation. In other words, the policy will still be paid out according to the insured’s wishes.
So, what does this mean for you? More than anything, this should be a reminder to regularly keep your policy up to date. Generally, we recommend reviewing your policy once a year to make sure everything is accurate and current. People move, people marry or get divorced, and yes, people die. It’s important that your policy reflects your most recent reality in the event the worst should happen. Taking out the policy was merely the first step in providing for your loved ones; taking care of the policy is the ongoing journey that follows.
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Louis Wilson is a freelance writer whose work has appeared in a wide array of publications, both online and in print. He often writes about travel, sports, popular culture, men’s fashion and grooming, and more. He lives in Austin, Texas, where he has developed an unbridled passion for breakfast tacos, with his wife and two children. This article is sponsored by Haven Life Insurance Agency. Opinions are his own.
Haven Life Insurance Agency offers this as educational only, and the information provided is not written or intended as specific legal advice. Haven Life Insurance Agency does not provide legal advice. Individuals are encouraged to seek advice from their own legal counsel.