What Happens to Life Insurance With No Beneficiaries?

Reviewed by W&S Financial Review Board
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Key Takeaways

  • Life insurance can help provide financial security to beneficiaries upon the policyholder's death as long as premiums are paid.
  • Primary beneficiaries have the first claim to the death benefit; secondary (or contingent) beneficiaries are next in line.
  • If no beneficiary is designated, or if beneficiaries can't or won't accept the death benefit, the funds go to the policyholder's estate and through probate.
  • Keeping beneficiary designations up to date is crucial to ensure the death benefit is distributed according to the policyholder's wishes and avoids probate.

Life insurance helps financially protect your loved ones after you're gone. You do that by naming a beneficiary to your policy's proceeds. Then when you pass, provided your life insurance premiums are up to date, the policy's death benefit goes to your beneficiary.

What happens though if your life insurance names no beneficiaries? There are a few instances where such situations may occur. In those cases, your death benefit goes to your estate — and into the probate process.

Here's what happens to life insurance with no beneficiary. And some potential next steps if you find yourself in such a situation.

Life Insurance Beneficiaries

A life insurance policy helps provide financial security and protection to your loved ones after you pass. Life insurance is a contract between you (as the policyholder) and an insurance company (as the issuer). The insurance company promises to pay a death benefit to your designated beneficiary after your death.

Provided your premium payments are up to date and the contract is in force, your life insurance beneficiary receives a sum of money called the death benefit. They can use those funds to help replace your income, cover living expenses, pay off debts or for whatever use they choose.

A life insurance beneficiary is a person, such as your spouse or siblings, or an entity, such as a charity, organization or trust. Depending on your needs and the life insurance policy, you may be able to designate several beneficiaries. It's important to review your policy as you're naming a life insurance beneficiary, to ensure you do so correctly.

What Is a Primary Beneficiary?

The primary beneficiary on a life insurance contract is the person or entity that has the first claim to the death benefit after you pass. With life insurance policies, it's common to name a spouse as the primary beneficiary. Some may choose to designate a beloved charity or organization as their primary beneficiary. In either scenario, after you pass, your designated primary beneficiary receives 100% of your death benefit payout.

You may also be able to designate multiple primary beneficiaries. If doing so, you assign a percentage of the death benefit to each. The allocations must total 100%. For example, if you have four kids, you can designate each as a primary beneficiary receiving 25% of the death benefit.

What Is a Secondary Beneficiary?

A secondary beneficiary is also known as a contingent beneficiary. A contingent beneficiary is a person or entity named to receive your death benefit if the primary beneficiary cannot. It's essentially a backup plan if something happens to your first-choice beneficiary. It helps ensure the death benefit moves to the next person in line of your choosing.

A typical example of a secondary beneficiary may be your children. For instance, in your current policy, say your spouse is the primary beneficiary receiving 100% of your death benefit. However, if something happens to that person, you can make your two children contingent beneficiaries, with each receiving 50% of the payout.

Secondary beneficiaries are only paid if all of the primary beneficiaries are exhausted. For example, if you have two primary beneficiaries and one is deceased when the time to receive the death benefit comes, all the funds go to the other.

What Happens to Life Insurance with No Beneficiary?

There are a few potential scenarios if a life insurance policy has no beneficiary. It may be because you didn't name one or the ones you did name aren't able to accept the death benefit.

Some examples include:

  • The primary beneficiary dies before the policyholder: If the person you've designated as the primary beneficiary passes before you do, the death benefit goes to the secondary beneficiary.
  • There is no contingent beneficiary: If you don't name a secondary beneficiary and your primary beneficiary passes before you do, the death benefit goes to your estate and through probate.
  • You and the primary beneficiary die at the same time: The insurance company will try to determine who passed first, if possible. If you died first, then the death benefit goes to your primary beneficiary — even if they pass within minutes of you. If they pass first, the death benefit goes to your contingent beneficiary.
  • One of your beneficiaries dies, but the other is alive: In this case, the share of the death benefit designated for the beneficiary who passed is distributed among the surviving beneficiaries in equal portions. If you want to ensure the estates of your beneficiaries receive the death benefit, you can name them "per stirpes" beneficiaries.
  • The beneficiary declines the death benefit: In some instances, your named beneficiary may decline the death benefit. If there's no contingent beneficiary, the funds go to your estate and through the probate process.
  • All of the beneficiaries have passed: If you have no remaining primary or secondary beneficiaries, then the death benefit goes to your estate.

In any of these scenarios, if no contingent beneficiary is in place, the death benefit typically defaults to your estate. From there, funds are distributed according to your will.

If you die without a will, the remaining funds from your death benefit are paid according to your state's intestacy laws.

What If a Life Insurance Beneficiary Is Ineligible?

There are instances where a life insurance beneficiary may be deemed ineligible. Depending on the circumstances, it may be treated as life insurance with no beneficiaries. Or a court may need to step in and determine ownership.

Some examples include:

  • The beneficiary is a minor: Minors can't legally manage death benefit funds. So a court may appoint a guardian to handle the funds, or your insurer may hold the funds until they reach maturity.
  • The beneficiary doesn't have the mental capacity: If your beneficiary is not mentally capable of managing the funds, then a court may appoint a guardian to handle the money on their behalf.
  • The beneficiary is invalid: Sometimes, named beneficiaries may not be legally valid. For example, if you leave your death benefit to your pet, it would be considered invalid, and the money would go to the secondary beneficiary, or if there is none, your estate.
  • The beneficiary is involved in your death: As unfortunate as this may be to imagine, if the beneficiary is responsible for your death, they can't benefit or profit from your passing. In this case, the death benefit would go to the contingent beneficiaries.
  • The beneficiary no longer exists: You may have named an entity, such as a charity or organization, as your beneficiary. However, if it's not still operating at the time of your death, the funds would go to your secondary beneficiary or your estate.

How Can Beneficiaries Access a Life Insurance Payout?

The process for beneficiaries obtaining a death benefit payout is relatively straightforward. However, it never hurts to review the process and policy steps with your loved ones so they understand how to begin the claim process.

If you pass with named life insurance beneficiaries who can accept your death benefit, they can take the following steps:

  • Obtain a death certificate: The life insurance company will need this for proof.
  • Contact the insurer: Notify the life insurance policy of the death.
  • Complete and submit forms: The insurer will require submission of the death certificate and paperwork to begin the payout process.
  • Choose a payout option: Depending on the coverage, beneficiaries may choose the life insurance settlement option that suits them (for example, in a lump sum or scheduled installments).
  • Wait for final processing: As long as the paperwork and beneficiary information are in order, the payout should be delivered in a few days to a few weeks.

If a person passes relatively soon after starting a policy or under suspicious circumstances, the life insurance company may take longer to pay the death benefit as it investigates the claim.

Finally, a beneficiary will only receive a payout if the policy is in force, meaning as long as the premiums are up to date and the policy hasn't expired. If the policy owner stopped paying premiums or the policy was term coverage and expired, there is no death benefit to be paid.

What Happens When Life Insurance Goes to an Estate?

If a life insurance policy has no living beneficiaries or no beneficiaries were named, the death benefit is usually paid to the policy owner's estate. In this case, the death benefit is an asset paid out as determined by the policy owner's will. If there's no will, any remaining proceeds are paid to the next of kin (as defined by state laws) once the probate process finishes.

The process generally goes as follows:

  • The proceeds from the policy go to your estate.
  • The funds, as well as other assets in your estate, go through probate, where the court oversees the distribution of assets.
  • Any debts, including taxes and funeral costs, are paid from your assets (which now include your death benefit).
  • After debts are paid, the remaining funds are distributed as laid out in your will. If you lack a will, the state will determine your next of kin. They'll receive the funds.

Keep in mind: If your life insurance death benefit goes to probate, the process could be lengthy, delaying your loved ones from seeing any funds. If you don't lay out your beneficiaries in your life insurance policy or define heirs in your will, then the funds may go to someone not of your choosing.

In addition, if you have significant debts, it's possible that leaving your death benefit without a beneficiary means the estate may use those funds to pay your bills. So, even if you've named heirs in your will, they may not receive the full amount of your death benefit or any funds.

Who Can Change the Beneficiary on a Life Insurance Policy?

Generally, the life insurance policy owner is the person who can change the beneficiaries and has the right to do so at any time.

What Is a Revocable Beneficiary?

With a revocable beneficiary, the policy owner can change who receives your death benefit without any restrictions. If you need to make a change, contact your life insurance company and request it.

Updates can happen at any time and may be made because of a death, birth, divorce or change in the relationship. For example, your spouse may have been your primary beneficiary, but after a divorce, you may want to change that to your children. A revocable beneficiary policy enables you to do so.

If you have a policy with a revocable beneficiary, you don't need to alert the beneficiaries of any changes. Having a revocable beneficiary provides added flexibility for the policy owner.

What Is an Irrevocable Beneficiary?

With an irrevocable beneficiary, you may need the beneficiary's consent to remove them from the policy. That may be difficult or even require legal action. And in these instances, if you make any changes, the beneficiary is notified.

An irrevocable beneficiary removes flexibility but can provide stability for potential beneficiaries. For example, if your divorce agreement requires you and your former spouse to maintain a life insurance policy, you may choose an irrevocable beneficiary arrangement to ensure you both comply.

Important: Keep Beneficiaries Current

It's a good practice to review your life insurance policy regularly, as well as after major life events like marriage, divorce, the birth of a child or the death of a family member. Doing so helps ensure your coverage reflects your current wishes and circumstances.

There are a few additional benefits, including:

  • Reflects your current wishes: Relationships can change over time, so updating your beneficiaries ensures the entities you intend receive your death benefit will.
  • Avoids legal complications: If beneficiaries are not up to date, the death benefit might go to an unintended recipient. The result could be legal challenges or family conflict.
  • Prevents payment delays: With an up-to-date beneficiary, your insurer can pay out the funds more quickly, helping your loved ones get the funds they need sooner rather than later.
  • Minimizes probate: When your death benefit payout goes to a beneficiary, it avoids probate. However, without a beneficiary, it can be subject to the added expense and delay that comes with the court process.

A death benefit is a lasting financial gift you can leave to loved ones after you pass. If you don't update your beneficiaries or have no beneficiary on life insurance, then those funds may get absorbed by debt in the probate process and not given to those who may most need them.

Other Considerations to Keep in Mind

It's not uncommon to have questions about life insurance with no beneficiaries. Some to consider include:

Should I Still Get Life Insurance without Beneficiaries?

Whether or not you should get life insurance if you have no beneficiaries depends. If you have no financial obligations, debts or interest in providing some monetary benefit to others, then life insurance may not be needed.

However, if you have debts, want to provide a legacy to an entity or institution or want to help others cover your funeral costs, then naming a beneficiary can be helpful.

Can I Add Beneficiaries to My Life Insurance Policy If I Initially Didn't Have Any?

You can add beneficiaries to your life insurance at any time. Review your policy regularly and update beneficiaries as needed — especially after significant life changes, such as marriage, births and divorces.

To add a beneficiary, contact your life insurance company (or agent) and request a beneficiary designation form. Complete and sign it, and you'll receive confirmation from your insurer that the changes have been made.

Seek Out Expert Advice

Life insurance can help provide your loved ones with financial protection and cover the expenses that may arise after your passing — as long as you've selected beneficiaries.

If you're not sure who to designate as your beneficiary, consider speaking with a financial professional or an attorney who can guide you through the process. They can help you understand the different types of beneficiaries and the pros and cons of each, as well as some of the potential implications, so you can make an informed decision.

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