Life Insurance: Who Benefits And How?

Life insurance is a contract between a policyholder and an insurance company that pays out a death benefit when the insured person passes away. When you buy life insurance, you designate beneficiaries, or the people or entities who will receive the benefits from your policy or accounts when you die. While it is not mandatory to name a beneficiary, it is usually the reason people buy life insurance in the first place. Being a beneficiary of a loved one's life insurance policy isn't something that happens every day, and the process can be confusing. In most cases, beneficiaries know they are beneficiaries because the policyholder tells them ahead of time. However, sometimes policyholders forget to tell their beneficiaries about the policy or its details. Many life insurance companies try to contact beneficiaries, but there is no automatic process to inform them of policyholder deaths.

How to find out if you're a life insurance beneficiary

If you're wondering whether you're a life insurance beneficiary, there are several steps you can take to find out. Here's a guide to help you through the process:

Communicate with the Policyholder

If possible, the easiest way to determine your status as a beneficiary is to speak directly with the policyholder. Open communication allows you to understand their life insurance coverage, your role as a beneficiary, and how to claim any benefits in the event of their passing. It's important to approach this conversation with sensitivity and respect for the policyholder's decisions.

Review Relevant Documentation

After speaking with the policyholder, review documents such as wills, trusts, insurance policy paperwork, and beneficiary designation forms. These documents will help confirm your beneficiary status and provide important details about the policy. Look for the policy itself or any related receipts, evidence of payments, or policy-related mail. Check both physical and digital storage, including computers and mobile phones.

Utilize Online Resources and Tools

There are several online resources and tools available to help you gather information about life insurance policies and beneficiaries. The National Association of Insurance Commissioners (NAIC) offers a Life Insurance Policy Locator Service, which is free and recommended by many state governments. Other resources include the NAIC website, NAUPA Life Policy Locators, and your state's Department of Insurance (DOI) website, where you can find information about the deceased and their insurance policies.

Contact the Insurance Company

If you believe you are a beneficiary and have identified the insurance company, contact them directly. They may ask for information such as the policyholder's name, date of birth, date of passing, and your relationship to the policyholder. Be prepared to provide proof of your identity, such as a valid driver's license or state ID.

Consult with Family Members and Advisors

If you are unable to find the necessary information, consider asking other family members who may have knowledge of the policy. Additionally, you can consult the deceased's estate planning attorney, financial advisor, or last employer, as they may have information about any life insurance policies.

Remember, it's important to be proactive and thorough in your search. Life insurance policies can provide financial security for you and your family, so don't assume that the insurance company will automatically contact you. By following these steps, you can take control of the process and gain clarity on your status as a life insurance beneficiary.

What to do if you think you're a beneficiary but lack information

If you think you're a life insurance beneficiary but lack information, there are several steps you can take to find out. Here's a guide on what to do:

Check for Policy Information

Firstly, try to identify if the deceased had a life insurance policy. Check their emails for communications or payment confirmations from a life insurance company. Look through their personal filing systems, both physical and digital, for documentation of a policy or receipt. If you have access to their bank account, look for financial records that include a life insurance provider.

Contact the Insurance Company

Once you've identified a policy, contact the insurance company to ask if you are a beneficiary. They may require you to provide proof of identity and explain your relationship with the policyholder. Many life insurance companies try to contact beneficiaries, but they often rely on beneficiaries or family members to inform them of the policyholder's passing.

Check with Family Members

If you are unable to locate policy information, consider asking other family members who may have relevant knowledge. If possible, look through the deceased's personal papers with their permission, or ask for permission to do so.

Use Online Search Tools

There are several online search tools that can help you find a lost policy or determine if you are a beneficiary. The National Association of Insurance Commissioners (NAIC) offers a free Life Insurance Policy Locator Service, which searches the databases of many insurance companies. You can also try checking your state's Department of Insurance (DOI) website, as some states have websites where you can input information about the deceased to find out if they had insurance policies.

Contact the Deceased's Employer

If you believe the deceased had coverage through their workplace, contact their former employer or labour union.

Consult with Professionals

If all else fails, consider consulting professionals who may have knowledge of the deceased's financial affairs, such as their estate planning attorney, financial advisor, or accountant.

Review the Deceased's Finances

If you have access to the deceased's finances, look for evidence of payments to insurance companies in their checkbook register or bank statements. Review their income tax returns for the past two years to check for interest income and expenses related to insurance policies.

Remember, if you are a beneficiary, you will need to provide proof of identity and verify that you are listed as a beneficiary within the policy to claim any benefits. It is important to be proactive in your search, as life insurance companies may not immediately be aware of the policyholder's passing or have current contact information for beneficiaries.

How to name a beneficiary

Naming a beneficiary is an important part of owning life insurance. A beneficiary is the person or entity that receives the benefits from your financial products when you die. Choosing who will receive your assets or the payout, also known as a "death benefit", is a decision that should be carefully considered as it cannot be changed or corrected after you are gone.

• Identify the type of beneficiary: There are two types of beneficiaries, primary and contingent. A primary beneficiary is the person or persons first in line to receive the death benefit, typically a spouse, children, or other family members. A contingent beneficiary, also known as a secondary beneficiary, is a backup beneficiary who will receive the death benefit if the primary beneficiary is deceased or cannot be located.
• Choose your beneficiary: You can name a person, a charity, a trust, or your estate as your beneficiary. When choosing a beneficiary, consider those who will suffer financially from your loss. You can usually split the benefit among multiple beneficiaries, as long as the total percentage equals 100%.
• Provide necessary information: When naming your beneficiary, be as specific as possible. Most beneficiary designations will require the full legal name and relationship of the beneficiary to you. Some designations may also include additional information such as mailing address, email, phone number, date of birth, and Social Security number. Providing as much information as possible will help the insurance company verify and locate your beneficiaries.
• Keep your beneficiary designations up to date: It is important to review and update your beneficiary designations as your life changes, such as after marriage, the birth of a child, or divorce. This ensures that your benefits are distributed according to your wishes.
• Inform your beneficiaries: Let your beneficiaries know that they have been named in your life insurance policy. Provide them with the name of the insurance company and the location of the policy. This will help them locate the policy and file a claim when the time comes.
• Seek professional help if needed: If you are unsure about naming a beneficiary or have a complex situation, consider consulting a financial professional or an attorney. They can provide guidance and ensure that your intentions will be carried out as desired.

The different types of beneficiaries

There are two main types of beneficiaries: primary and contingent.

A primary beneficiary is the person (or persons) first in line to receive the death benefit from your life insurance policy. Typically, this is your spouse, children, or other family members. If you name multiple primary beneficiaries, you can choose how much of the payout each party receives. For example, you might allocate 50% to your spouse, 30% to your child, and 20% to a charity. No matter how you divide a life insurance payout among beneficiaries, the percentages must add up to 100%.

In the event your primary beneficiary dies before or at the same time as you, most policies also allow you to name at least one backup beneficiary, called a "secondary" or "contingent" beneficiary. If the primary beneficiaries are all deceased, the secondary beneficiaries receive the death benefit.

Your beneficiary can be a person, a charity, a trust, or your estate. Almost any person can be named as a beneficiary, although your state of residence or the provider of your benefits may restrict who you can name. Make sure you research your state's laws before naming your beneficiary.

You can also have irrevocable vs. revocable beneficiaries. You cannot change an irrevocable life insurance beneficiary designation without the beneficiary's approval. For this reason, irrevocable designations aren't common. However, they can be useful if you want to make sure that the death benefit reaches a specific person, such as your child. In contrast, a revocable life insurance beneficiary designation is flexible. You can change, update, add, or remove a revocable beneficiary at any time.

It's important to keep your beneficiary designations up to date as your life changes (marriage, children, divorce, etc.).

What happens if there is no beneficiary

If there is no beneficiary listed on a life insurance policy, the payout will go to the estate of the deceased policyholder. This will then be subject to the probate process, which can be lengthy and costly.

The probate process is the legal procedure for settling the deceased person's estate. The court oversees the distribution of assets, including life insurance proceeds, according to the terms of the will. If there is no will, the probate process will follow state intestacy laws. Intestacy laws determine how the assets are distributed among the deceased person's heirs.

During probate, the life insurance proceeds may be used to pay off any debts, including taxes and funeral costs. This could result in the heirs receiving less than the original death benefit amount.

To avoid probate, policyholders should designate specific beneficiaries and regularly review and update their beneficiary designations. This ensures that the death benefit is distributed according to the policyholder's wishes and provides a more direct and efficient transfer of the payout to the intended recipients.

Frequently asked questions