What happens if the beneficiary of a life insurance policy is deceased?

If the beneficiary dies before the insured person, the life insurance proceeds will go to the contingent beneficiary or to the insured person's estate.

When a person fills up the life insurance application, it is required that he fill up the lines for his primary beneficiaries. And then:

1. If that primary beneficiary has predeceased the insured, then the proceeds will go, not to the heirs of the primary beneficiaries, but to the contingent beneficiaries.
2. If the contingent beneficiaries are not named or if the first beneficiaries and the contingent beneficiaries have died before or with the insured, then the insurance proceeds will go to the insured's estate. This means that those who are named as beneficiaries of the estate will be the ones who will receive the proceeds. The heirs will get the percentage as stated in the will.

The problem with the insurance proceeds going into the estate is that the costs related to the estate (inheritance taxes included) will increase. There may also be delays when the court proceeds to exercise a probate action on the estate. The estate will also have to pay all obligations and debts the insured has, and this may eat into the insurance proceeds itself.

That is why it is wise to name a contingent beneficiary, so that in case the primary beneficiary passes away before the insured does, the insurance money will still be received as quickly as possible, without being tied up by any legal actions. And, if your primary beneficiary passes away, you should immediately change the beneficiary so that you can ensure that the insurance proceeds are immediately received by your loved ones.

If there are more than one beneficiaries and one of them dies, his share will usually be divided up for the rest of the beneficiaries.

To ensure how insurance proceeds will be paid to beneficiaries, you should check your policy. Sometimes, instead of the policies stated above, the "per stirpes" beneficiary policy is upheld by some insurance companies. This states that when the beneficiary is dead, the beneficiary's next of kin will stand to get the proceeds.

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