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In this article we will answer the following questions: What happens to life insurance with no beneficiary?  What happens if the beneficiary dies before you? What happens if they die at the same time? And we will give answers to many of the most common questions through real life examples. We will also give you some suggestions and common mistakes to avoid.

There are many doubts that may arise and in this article we are going to raise all these different scenarios and give you a clear answer. Our estate planning attorney in New York has over 30 years of professional practice. Do not hesitate to let us know your case so that we can advise you in the most efficient way possible.

What truly happens in 2021 to life insurance with no beneficiary in New York 

When taking out a life insurance policy, the beneficiaries are named. In this way, the insurer knows who to pay for the death benefit. In the case of not naming a beneficiary or if they die before the insured, things can get very complicated. In general this is what can happen.

  1. If there is no beneficiary, the life death benefit will go to a contingent beneficiary. In the absence of a contingent beneficiary, your death benefit will go to your estate. 
  2. Once in your estate, the death benefit will be taxed and used to pay the debt. 
  3. If no heir can be found, the state will keep your assets.

The previous one is only a very quick summary, let’s now delve into the topic of what happens to life insurance with no beneficiary, analyzing the different situations in which you can find yourself. Let’s start by clarifying some basic terms and concepts. 

Definition of beneficiary

life insurance policy

In short, the beneficiary is the one who gets all your stuff when you die. Among others, this could be:

  • An adult child;
  • A spouse;
  • A non-profit organization or charity.

Some aspects to bear in mind: 

  • You can include more than one beneficiary and this does not have to be a relative.
  • Some insurance companies allow you to assign a percentage of the policy to different beneficiaries to divide it evenly.
  • Having a beneficiary will create a transparent situation for both the insurance company and yourself. It will speed up the payment process and give you control over who gets the money when you pass away. 

Types of beneficiaries

Although there are 3 types, the first two are the main types of beneficiaries:

  1. Primary: It is the first in the queue to receive the payment from the insurer. When naming your primary beneficiary it is important to have as much information as possible. From the legal name, the social security number, place of residence or the date of birth among other data.
  2. Secondary (Also known as contingent): The contingent beneficiary will receive your life insurance if the primary beneficiary cannot be located or if the primary beneficiary dies before you. The named contingent beneficiaries will ask you to set and lay out how you want your policy to be passed out.
  3. Tertiary: It is very rare to name this type of tertiary beneficiary. Basically, they are the ones who would get your insurance policy in the event that the primary and contingent beneficiaries cannot be located or die.

Protect your beneficiaries

The following steps can be helpful in ensuring that named beneficiaries receive their death benefit:

Appoint a contingent beneficiary: This will prevent your death benefit from going to your estate. It is the most effective way to be prepared in the event that a primary beneficiary dies before a policy’s death benefit is distributed. 

Indicate the percentage of distribution: Being precise in the designation of adequate amounts in the policy by having several beneficiaries will avoid possible legal disputes.

Keep beneficiaries updated: The beneficiary of a life insurance must submit a claim for the money along with evidence to be awarded the insurance. Make sure that your beneficiaries know that they are included in the life insurance policy and are aware of all the details so that they can claim the money after your death.

Update your life insurance policy: Events such as the loss of a spouse, the increase of the family, marriage or others will make it necessary to update your policy. You should include the current contact information for the beneficiaries. By using a New York revocable living trust you may assign minors as beneficiaries and the amount will be held until they are old enough to make use of it.

How to choose your beneficiary correctly?

Following the advice of Dave Ramsey, the financial guru, there are 3 questions to ask when choosing beneficiaries.

  1. Who do you support financially? They should be a beneficiary.
  2. Who will be the trustee in case you plan on leaving some of your death benefits for your children?
  3. Do you support any nonprofits, charities or churches that should receive a part of your death benefit?

Next we will analyze different possible scenarios in a life insurance without a beneficiary to learn what truly happens.

What happens to life insurance if the sole beneficiary dies?

  • In this case, the death benefit will be paid to the contingent beneficiary. 
  • In case you do not have a contingent beneficiary on the list, your death benefit will go to your estate.
  • Fees and taxes will likely apply to your death benefit and take longer to reach your loved ones.

Keep your beneficiaries up to date with your insurance company to prevent death payment from going to your estate. This update can be done online or by phone in many cases while other insurance companies will require the form by fax or on paper.

Note: If you change the beneficiary, you should provide the insurer as much information as possible and make sure that the information is correct. These should include the full legal name, date of birth, and current address.

What happens if one of the beneficiaries dies on a life insurance policy that has multiple beneficiaries?

In these cases it happens that the income from the life insurance policy will be divided among the other co-beneficiaries.

Imagine that the spouse and brother and sister are listed as co-beneficiaries rather than primary and contingent. In this case, each of them receives one third of the death benefit. 

non-beneficiary life insurance scenarios

Now imagine that the brother dies before the insured. In this case, the amount that each of them receives depends on the form of distribution based on law, per stripe or per capita basis.

Remember that a policyholder can name multiple primary beneficiaries as well as multiple contingent beneficiaries.

What if the Insured and the Primary Beneficiary Die at the Same Time?

When the insured and the main beneficiary of the life insurance die within 24 hours of each other (known as simultaneous death) things get complicated.

In these cases, depending on who died first, the life insurance payment may go to the contingent beneficiary of the insured, their estate, or the estate of the beneficiary.

Imagine a catastrophic situation where the insured and the primary beneficiary were killed in a fire or fatal car accident. This is what can happen with the life insurance:

  • If it is proven that the beneficiary lived a few minutes longer than the insured, the death benefit will go to the beneficiary’s estate.
  • If the evidence suggests that the beneficiary died first, the death benefit will be paid to the contingent beneficiary. If there is no contingent beneficiary, it will go to the deceased insured’s estate.
  • In case of doubt as to whether the insured or the beneficiary died first, the life insurance company assumes that the insured outlived the beneficiary and will pay the benefit to the contingent beneficiary (if there is one listed) or to the estate (if there is not a secondary beneficiary).

Who will receive the payment if the beneficiary dies before the benefit is paid?

If the primary beneficiary dies before the policy benefit is claimed, approved, processed or paid, this death benefit will be transferred to the primary beneficiary’s estate.

This occurs even if the insured had a contingent beneficiary on the list since the main beneficiary was alive at the time of the insured’s death, they will be the recipient.

What if the beneficiary is an organization that no longer exists?

In these cases we may encounter different scenarios:

  1. Your death benefit would be paid to your estate. However, you will read later in the article that this is not the ideal option.
  2. Another option is that an organization that you named as your beneficiary can claim the money.

For example, you could leave your money to a closely held business that functioned as a limited liability company. and then the company goes public and restructures itself into a C corporation. Our New York business lawyers will help you choose the best path after studying your case.

What if there is no life insurance beneficiary?

In these cases, the death benefits of the life insurance pass to the estate of the deceased, that is, of the deceased insured. It should be noted that this approach is not common, but sometimes it happens that there are no beneficiaries named in life insurance policies. 

From this moment on, the life insurance payment becomes part of the total assets of the estate and is distributed and managed following the estate planning documents.

New York intestacy law

If the insured died intestate (without a will), their estate becomes controlled by the state laws of the state where the insured resided. In case of not finding a living relative, the state will take the remaining assets. You can learn more by reading our article on New York intestacy law.

Frequently Asked Questions 

Below we will answer some of the most common questions on life insurance and what happens when there is no beneficiary and other related matters. Remember that to get professional advice on your case, you can contact us right now by email or phone.

Should your death benefit go to your estate?

No. The reality is that there are many reasons why you do not want your death benefit to go to your estate, including:

  • If your death benefit goes to your estate, federal and state taxes will be taken out. The probate court can take more than a year to resolve the case so you will not receive immediate payments of your death benefits if they are paid after paying debts and taxes.
  • The state by following state laws can get your remaining assets if there is still an inheritance after taxes and debts and there is no will and no living relative or heir can be found.

If I leave unpaid debts when I die, can creditors seize my death benefit?

This only happens if you don’t have a beneficiary named on your policy. If you have a beneficiary it will go directly to that person or organization and the creditor cannot claim it.

If your death for benefit is paid into your estate, creditors can lay claim to your money. 

How can I change or add a beneficiary?

Contact your insurance company and they will tell you what to do. As a general rule, you must fill out a form online, on paper or by phone and the process will vary depending on your carrier and the type of policy.

Typical Beneficiary Mistakes to Avoid with a Life Insurance Policy

There are common mistakes people make when it comes to choosing a beneficiary that can result in goals contrary to what you might have wanted.

Naming a minor as a beneficiary on your life insurance policy

Although parents use life insurance to support their children in the event that one or both of them die, naming a minor as a beneficiary is not always the best approach.

  • The life insurance company will not pay life benefits directly to a minor.
  • If you have not created a trust or made any legal arrangement for a guardian to manage the money on your behalf, the court will assign one to you.
  • It is best to establish a trust to benefit the minor and name the trust as the beneficiary of the policy. Failing that, name an adult custodian for the life insurance proceeds under the Uniform Transfers to Minor Act.

Not being detailed and specific when naming beneficiaries

beneficiaries in life insurance

People often make the mistake of not being specific enough when naming beneficiaries. For example, if you are leaving money to a charity, list the name, address, and tax identification number of the organization. If you have children from a previous marriage, do not name the beneficiaries only as children. Instead, list their legal names and social security numbers.

Do the same for the conditions on who gets what. Specify the percentage or how the money will be distributed. When establishing a living trust you can list specific terms and conditions on how your beneficiaries will receive your assets.

Note: To learn more about trusts, check our New York trust lawyers page. You can read articles such as living trust vs living will for knowledge on the matter. You might also be interested in learning everything related to irrevocable trusts in New York

Assuming that the beneficiaries in your will will avoid the probate process

In estate planning, people usually believe that a written will will pass their estate to their heirs. Unfortunately, the will won’t allow the proceeds of your policy to be transferred directly to whoever you want. You must first go through the lengthy and costly probate process that can take years before the assets are distributed to the heirs.

Getting taxed by having a different policy owner, named insured, and beneficiary

As a general rule, life insurance death benefits are tax-free. However, in the case described where one person owns the policy, another is the designated insured, and the third is the beneficiary, the benefit can be considered a gift and will be taxable.

Our life insurance attorney can resolve a beneficiary dispute

Now you know what happens to life insurance with no beneficiary. This is usually the reason for family disputes between beneficiaries and one of the main reasons as to why insurance companies deny claims.

Family members, friends, and even creditors can file claims for the same death benefit claiming they are entitled to life insurance proceeds.

If you are involved in contested disputes with other beneficiaries or with the insured’s estate, you need the best legal advice.

At Ortiz & Ortiz we have been resolving these types of disputes and all kinds of procedures related to estate planning for more than 30 years. We can help you protect your beneficiary rights and collect the payment you are entitled to. Feel free to contact us today and let us know your situation.