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What Happens to Life Insurance If a Beneficiary Is Deceased?

Life Insurance Policy Documents
Are you worried about your life insurance plans? If you're creating a long-term plan for your family's future, you might have some questions regarding life insurance beneficiaries. Life insurance often operates outside of a will; life insurance goes directly to beneficiaries rather than through probate. You need to keep your beneficiaries up to date if you want to ensure that the right people get the money.

What Happens to Life Insurance If a Beneficiary Is Deceased?

Life insurance is setup to address exactly this type of problem. Life insurance policies will ask you about a contingent beneficiary. This contingent beneficiary is the person who will get money if and only if the original beneficiary is deceased. If the original beneficiary is alive, the contingent beneficiary will get nothing.
However, you can set up a life insurance policy however you want, disbursing funds as desired. As an example, you could set up a fund so that your child gets 50% and your spouse gets 50%, with a contingency that your spouse's 50% also revert to your child if your spouse is deceased. This will make it so that your child will get 100% of the funds if you and your spouse have both passed.
Though a will can be contested, it's substantially harder to contest any form of life insurance policy. A life insurance policy isn't an asset you have; it's an insurance payout. This underscores the need to modify your beneficiaries regularly because if you aren't adding new children or new partners to your policy, they may not get anything.
It should also be noted that the exact timing of death may be necessary to determine. Consider two spouses who die in a car accident. If one spouse has a life insurance policy and died first, their life insurance policy might technically payout to the other spouse directly upon death.
It is then the other spouse's estate that is going to control where the money finally ends up, rather than the first spouse's life insurance policy. This further underscores the need for families to discuss their planning together. 

What If Your Contingent Beneficiary Is Deceased (Or There Isn't One)?

If a beneficiary dies and there are co-beneficiaries (but there are no contingent beneficiaries) then the co-beneficiaries will split up the life insurance policy equally. Consider a scenario in which you left 25% to your sister, 25% to your brother, and 50% to your partner. If your sister passes on before you (and you do not update your life insurance policy), your brother and your partner will get 12.5% each in addition to the rest.
Some life insurance policies have irrevocable beneficiaries rather than revocable beneficiaries. An irrevocable beneficiary is one who will inherit from the life insurance policy unless they agree to be taken off the policy. In this situation, if they are deceased, the money will likely go into their estate.
If there are no living beneficiaries, however, and the beneficiaries were revocable, the life insurance policy is paid out to the estate itself. It will then be distributed based on the estate. If there is no will in place, the insurance policy is going to be inherited, along with the rest of the assets, based on family relationships. 
Life insurance works quite differently from conventional wills. It's worth it to take some time to update and review your insurance policies, in addition to ensuring that you still have the coverage that you and your family may need. For more information and to find out more about setting up your beneficiaries, contact the life insurance experts at American Quality Assurance Group.