How Does Life Insurance Work if Everyone Dies, Including the Beneficiary?

If you have a life insurance policy, you probably already know who your beneficiary will be. However, naming a beneficiary doesn’t ensure that your life insurance benefits will pass smoothly to the person they are intended for. There are times when the policyholder and beneficiary die around the same time. In this scenario, you should know how your life insurance policy will be handled.

How Does Life Insurance Work?

So, how does life insurance work? It’s a kind of insurance contract where you pay monthly premiums to continue receiving coverage. When you pass away, a death benefit will be paid out by your insurance providers to anyone who was named as a beneficiary in your policy.

Keep in mind that some of these policies offer death benefits as well as living benefits. Living benefits allow you to take funds from your death benefit while you’re alive. If you’re thinking of buying life insurance, some factors you should consider include:

• How much you’ll pay in premiums
• The amount of coverage you need
• If a permanent or term life insurance policy is better
• What riders you might want to include

What Happens if Everyone Dies, Including the Beneficiary?

There’s always a possibility that your beneficiary might pass away around the same time you do, which can create issues with how your life insurance policy is paid out. If you pass away and your beneficiary is unable to receive the death benefit, the money will go directly through probate court alongside the remainder of your assets.

During probate court, a judge will determine who will receive your money. Keep in mind that all of these assets can be taxed and can be provided to creditors to cover the debts you owe. Without probate court, life insurance benefits usually don’t need to be taxed and are immediately given to beneficiaries once the policyholder passes away.

Probate can last upwards of one year, meaning the recipient won’t receive the funds immediately. If you didn’t create a will before you died, your estate would be handled according to the intestacy laws in your state. In most states, your assets would be provided to your next of kin.

A living relative may not be found. In this case, the state would seize your remaining assets, which is why it’s highly recommended that you update listed beneficiaries if one or more of your beneficiaries dies.

If your primary beneficiary dies after you, but the life insurance claim has already been approved and processed, the assets will go to your beneficiary’s estate even if a secondary beneficiary was named.

The Bottom Line

Life insurance policies are meant to provide you and your loved ones with peace of mind that any financial challenges caused by your death can be avoided. Even though the handling of death benefits from an insurance policy is more complicated if you die without a named beneficiary, there’s still a structured process that occurs.