Life Insurance Beneficiary Rules You Should Know (2024)

FAQs

What are the rules for the beneficiary of a life insurance policy? ›

As a standard life insurance beneficiary rule, you must explicitly identify each beneficiary with their full name and Social Security number. Pro tip: Do you live in a community property state? If so, you'll need your spouse's consent to designate a primary beneficiary other than them.

A beneficiary is the person or entity that you legally designate to receive the benefits from your financial products. For life insurance coverage, that is the death benefit your policy will pay if you die. For retirement or investment accounts, that is the balance of your assets in those accounts.

Filing a Claim

To file a claim, the beneficiary will need to notify the insurance company's claims department. The claims department then sends a form for the beneficiary to complete and return along with the policy and a certified copy of the insured's death certificate.

Many states require insurance companies to check the Social Security “Master Death File” for deceased policy holders and to try to notify their beneficiaries when they find a policyholder on that list.

If one spouse purchases term life insurance coverage, the other spouse is generally the beneficiary unless another is specified. If there is a beneficiary other than the spouse, the spouse cannot override it. However, they are usually entitled to half the death benefit because the law splits community property in half.

If you've lost a family member or close friend, you may be listed as a beneficiary without even knowing it. Suppose the deceased didn't have a partner or children to name on their policy; they might have branched out to other relationships when choosing the beneficiary of their life insurance policy.

Once a policyholder has passed away, beneficiaries typically receive life insurance notification within 90 days of the death. However, this can vary depending on the insurer, and whether they're able to locate all beneficiaries.

An executor can override the wishes of these beneficiaries due to their legal duty. However, the beneficiary of a Will is very different than an individual named in a beneficiary designation of an asset held by a financial company.

Generally speaking, California law states that beneficiaries have a right to information and accounting regarding the trust. More specifically, beneficiaries have a right to information regarding all changes made to the trust promptly, and they have a right to know the plan to administer and distribute the estate.

And you shouldn't name a minor or a pet, either, because they won't be legally allowed to receive the money you left for them. Naming your estate as your beneficiary could give creditors access to your life insurance death benefit, which means your loved ones could get less money.

What voids a life insurance claim? ›

Missing documentation is a common cause for rejection and can often be rectified with added evidence. However, other reasons, such as a contested claim, a lapsed policy or other similar situations can make it more difficult, if not impossible, to claim the death benefit.

There is no time limit for beneficiaries to file a life insurance claim. However, the sooner you file a claim for a death benefit, the sooner you will receive your money. Filing as soon as possible makes sense because the insurer could need a month or longer to investigate the claim before paying out.

Yes. Banks may require the beneficiary to provide a Social Security number (SSN) for monetary transactions. This requirement is intended to verify that funds are distributed to the correct designated individual(s) listed in a will, trust, insurance policy, retirement plan, annuity, or other contract.

Distributing assets to beneficiaries

After all debts have been paid, an estate's remaining assets — minus any probate feeds — are distributed to beneficiaries in accordance with the will, or — if there is no will — by following a state's laws of succession, otherwise known as the “order of heirs.”

When a beneficiary can't be determined, the benefit is often instead paid out to your estate. The proceeds and the rest of your property and investments will be distributed according to your will, the insurance contract details and state law. The contract will go into probate if there isn't a beneficiary on file.

The options can differ between carriers, but the most common ones across the industry include: Lump sum payment. This is a common choice, especially when multiple beneficiaries are designated. Your beneficiaries will receive a single payment that includes the entire death benefit.

Whatever you do, don't name the child as the beneficiary—the law prohibits anyone from receiving a life insurance payout if they aren't the age of majority (which could be 18 or 21 depending on your state). Consult with an attorney if you have a disabled or special needs child.

There's no deadline for filing a life insurance death benefit claim — that's good news if you're concerned about how long after death you have to collect life insurance.

If a policyholder dies and no beneficiaries can accept the death benefit, the money is paid out to the insured's estate and a probate court distributes the money. Does life insurance go to next of kin? Your next of kin can get the death benefit if you make them the beneficiary — or if the benefit goes through probate.