If a life insurance policy names a beneficiary and the beneficiary is identifiable, the life insurance death benefit will be paid to the named beneficiary. Life insurance proceeds will only need to go through probate in several unusual situations, requiring you to know how to probate life insurance.
What if a life insurance beneficiary designation is left blank or not filled out?
A life insurance beneficiary designation that is filled out is generally followed, although it is subject to challenge, which we wrote about here. If the life insurance beneficiary designation is left blank, the death benefit is paid pursuant to the life insurance contract. The vast majority of life insurance contracts indicate that, if there is no beneficiary entered, the life insurance proceeds will be paid the decedent’s probate estate, and thus subject to the plan of distribution of the probate estate. In other words, a will or the laws of intestacy will apply, and the probate court will order the distribution of the life insurance.
What if the named beneficiary of a life insurance policy is dead?
If the named beneficiary is dead, did the death occur before or after the death of the insured? If the beneficiary died before the insured, the death benefit will be paid to a contingent (also known as secondary) beneficiary. For examples, in a typical young family situation, the spouse is listed as the primary beneficiary, and the children are listed as the secondary beneficiaries. If there is no secondary beneficiary, the death benefit is paid pursuant to the life insurance contract, which typically pays the death benefit to the decedent’s probate estate.
If the named beneficiary dies after the insured, but before the death benefit is paid, the named beneficiary will have already vested in the death benefit, and the death benefit will be paid to the estate of the named beneficiary.
What if the named beneficiary of a life insurance policy cannot be located?
If the named beneficiary is known to be an actual person and is believed to be alive, but just cannot be found, the insurance company will typically hold the death benefit proceeds until the named beneficiary appears. In some situations, however, the named beneficiary might be a fictitious person, or could be ambiguous such that it is uncertain who the named beneficiary is.
In such a situation, the probate estate of the deceased or the life insurance company could file a lawsuit to ask the court to determine who the proper beneficiary is, or to ask the court to declare that there is no beneficiary named, in which case the life insurance proceeds would be paid to the probate estate normally.
What if the named beneficiary of a life insurance policy is a charity that does not exist?
Under a concept known as cy pres, a court in some states can substitute one charity in place of another. The cy pres doctrine would require the probate court to find a charity as close as possible in mission and scope as the charity that no longer exists. A common situation is where the insured, for example a resident of Las Vegas, names a charity, such as “Dog and Cat Rescue of Nevada,” where no such charity exists. “Dog and Cat Rescue of Las Vegas” exists, as well as “Animal Rescue of Nevada.”
Typically, a court would determine who should receive the death benefit, after notice to all possible candidates and an opportunity to participate in the proceedings. Helpful evidence could be, for example, that the decedent had made annual gifts to “Dog and Cat Rescue of Las Vegas,” or named “Dog and Cat Rescue of Las Vegas” in other testamentary documents, such as a will. The probate court would ultimately determine the recipient of the life insurance.