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Usually, life insurance plans are upfront: once the policyholder dies, the insurer pays the death payout to the beneficiary of policy, whether it is an individual or entity. Though, things get complex when it is confusing to whom the profits will be transferred. What happens with a plan when no policy beneficiary is designated?
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Who will get the amount if the beneficiary dies before the policyholder? Such conditions can cause important variations in how the profits are distributed and may affect the claim that several beneficiaries make to avail the death benefit. Read on to know more about these questions:
A Life Insurance Beneficiary is an individual or organization that you choose to receive the death benefit of your policy when you die. Your beneficiary can be your child or your spouse.
Life insurers must pay the profits to those mentioned as beneficiaries. They can be the policyholder’s spouse or his/her ex-partner, children, business partners, siblings, trust, or a charity. The policyholder can list a number of beneficiaries at the same time. Besides naming a primary beneficiary of life insurance policy, they can also appoint a secondary beneficiary. Secondary beneficiary will get the death benefit in the situations when the primary beneficiary is not available or cannot be found or dies before the policyholder, or dies with the policyholder.
The main concern is Who inherits the proceeds if there is no beneficiary? So, if the primary life insurance beneficiary dies in an unfortunate event and there is no secondary beneficiary assigned, the plan is regarded as having no listed beneficiaries. Without a mentioned beneficiary to claim the death payout, the benefit is paid to the deceased’s estate. In this situation, it can take a longer time for the profits to get to the family of the policyholder and the amount is likely to be subjected to taxes of estate.
Complexities start when the primary beneficiary and insured dies within 24 hours i.e., 1 day of each other. Based on the condition of who dies first, the payout will be provided to the policyholder’s dependent beneficiary, their estate, or their beneficiary’s estate.
Let’s understand this with the help of an example:
If the insured and the primary beneficiary were in the same deadly car accident, and there is valid proof of living beneficiary a few minutes before the policyholder, the death benefit is payable to a beneficiary’s estate. If the beneficiary passes away first, then the death payout will be paid to the dependent beneficiary. And, if in case there is no dependent beneficiary, then it will be transferred to the dead insured’s estate.
If it is not clear whether the beneficiary or policyholder died first, then the insurer will assume that the policyholder survived the beneficiary and the benefit will be paid to the dependent beneficiary.
If in case the primary beneficiary dies in an unfortunate event before claiming, processing, approving, and paying the policy benefit, the death payout will go to the estate of the beneficiary. Even if the policyholder had a dependent beneficiary mentioned, the primary beneficiary will receive the payout since they were alive during the policyholder’s death.
There are a number of things you should do when your parents die. One of your priorities will be finding different ways to pay for the final expenses, which includes insurance policies. Follow the below steps to find a lost life insurance policy:
Search for the life insurance policy-related documents
Check for the policy in bank-statements
Talk to your financial advisor or attorney
Examine the application of your life insurance policy
Go through the emails of the deceased parents
Contact the previous employers
Look out for income tax returns
Search in the government database that is available online
Contact the officials of the unclaimed property
Get in touch with the state insurance department
Wait for the insurer to contact you
In case of a policyholder’s death, insurers do not always take it upon themselves to search for surviving beneficiaries. Although companies have access to their death records, they often do not take notice of the death of policyholders and delay payouts until the beneficiary makes a claim. Unfortunately, every beneficiary is not aware of the life insurance claim process which leads to an unclaimed insurance amount that goes to the state or gets stuck.
Generally, a spouse does not have any right to claim the life insurance amount if someone else is appointed as the beneficiary except in the case of community property rates. In a community property state, both the partners have equal shares on any earned income and any other property bought using that money. Term life insurance is the community property that gives 50 percent right to the spouse on the death benefit and the remaining 50 percent will be paid to the appointed beneficiary.
If you die with an active policy, then the payout will be provided to your beneficiaries. It is important to keep your beneficiaries up to date and to have dependent beneficiaries in case your primary beneficiary cannot receive the payout. If all your beneficiaries die and you do not update the life insurance policy, then the death benefit will be paid to your estate and is subjected to fees and taxes.
Note: It is suggested to calculate the term plan premium on the term life insurance calculator online tool by Policybazaar before buying.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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