Life insurance policies rely on beneficiary designations to determine who receives the policy benefits in the event that the insured individual dies. In order for this process to happen the way that it is intended, the beneficiary must be clearly named, identifiable and living after the insured person's death. Here's a look at some of the most common life insurance payout scenarios and how to address them if they happen to you.
Standard Life Insurance Payout Process
In most cases, the insured individual will pass away before his or her beneficiary, and if the beneficiary should die first, it's easy to update a policy beneficiary with a phone call to the insurance company and a signature on the beneficiary assignment form.
Some life insurance policies include both a primary and secondary beneficiary. If the primary beneficiary is deceased, the settlement is automatically paid to the secondary beneficiary. If there isn't a secondary beneficiary, the policy will typically pay to the estate of the insured individual. That leaves the family to negotiate the probate process to receive those funds.
Understanding Estate Payments
If the beneficiary cannot be found or is deceased, the payment is made to the estate of the insured. In some states, this automatically makes those funds part of the estate encompassed in the will, so if there's a will that leaves the estate to a specific family member, spouse or other individual, the life insurance benefit will be included in that estate payment.
If there is no will in place, the life insurance benefit automatically goes to probate. In that case, any family member who believes that he or she has the right to claim it must take the case to court. In this case, it's best to talk with an attorney ahead of time for legal support.
If the beneficiary of the policy is still alive when the insured individual passes away, that means that the policy benefit is payable to the beneficiary. But, if the beneficiary passes away before the payment can be made, then it will go to the beneficiary's estate instead of the policyholder's estate. In that case, the distribution of the funds will depend upon the beneficiary's will or the determination of the probate court case.
When the Insured and the Beneficiary Die Together
In 1940, the Uniform Simultaneous Death Act was passed to clarify the handling of life insurance benefits and estates in the event that an insured individual and their sole beneficiary should pass away together. This is particularly common in the case of accidents and other similar events.
The law was designed to prevent life insurance benefits from being automatically paid to the deceased individual. For example, if a married couple each carry an insurance policy with the other spouse as their beneficiary and they pass away together in a car accident, this law prevents the policies from paying out benefits to the other spouse.
Instead, if it is impossible to determine if either of them passed away before the other, the courts can make the determination about who receives the policy payout. In most cases, that will be the next of kin or it will be determined by the will left behind by each of the deceased.
What You Need to Claim Life Insurance Benefits
If you believe that you're entitled to the benefits of a life insurance policy, you need to be able to not only show your proof of identity, but also evidence that you are the named beneficiary or next of kin. You'll have to fill out a claim form for the insurance company and supply the policy details, including the policy number, the name of the insured and the date of his or her death. Some states also require that you supply the death certificate as documentation.
Life insurance payouts can be intimidating to navigate, and having to deal with them while you're struggling with your grief over the loss of a loved one makes it harder. With the information presented here, you can understand some of the more complex issues that arise with policy benefit payouts and what you can do about them.