Definitions

Before we get into detail first we need to cover the definitions of these three components of a life insurance policy.

Beneficiaries
A beneficiary is a person or organization that receives benefits from an insurance policy. In most cases, the beneficiary automatically receives the death benefit of an insurance policy if the insured passes away. This can be any individual you choose, such as your spouse or child, but it's common for beneficiaries to be your estate (the people who will own and manage your property after your death).

Policyowners
A policyowner is the person or organization that owns an insurance policy. This can also be any individual you choose, but it's common for the policy owner to be the insured (the person whose life is insured by the policy).

Death Benefit
A benefit paid by an insurer to beneficiaries of a life insurance policy upon the insured's death.

Quick Recap on How a Life Insurance Policy Works

Life insurance is a contract between an individual and an insurer. In exchange for your promise to pay premiums to an insurer, if you should die before a certain date, the insurer agrees to pay money - the death benefit - at the time of your death. One common misconception about life insurance is that it can be "taken back." It cannot. Once you have purchased a policy, the death benefit belongs to your beneficiaries - no exceptions. The only exception would be if you cancel or let your policy lapse before paying all premiums due. Because of this, it's important that you keep up with your premiums until your policy has been fully paid up.

Common Questions

Who gets the death benefit of a life insurance policy if the beneficiary is deceased?

The insurance company will look for primary co-beneficiaries (next of kin or not). Secondary beneficiaries will get the money if there are no primary co-beneficiaries. If there are no living beneficiaries, the funds will be paid to the insured's estate.

Is it possible for a partner to change a beneficiary on a life insurance policy?

This is a complex question that is based on several factors including the life insurance policy type, state of residents, state where policy was issued, and how premiums were paid for.

Can I buy multiple life insurance policies?

Yes, you may have more than one life insurance policy, and you don't have to buy them from the same company. Because purchasing numerous policies can help you ensure that you have adequate coverage for your loved ones as long as they require aid at a price that is fair.

Who owns an insurance policy when policyowner dies?

When an individual dies, their life insurance policy belongs to the person or business to whom it was transferred.

Can I buy a life insurance policy for another person?

An individual can purchase a life insurance policy on another individual if they are related by blood, marriage, or law.

What is the difference between a Primary Beneficiary and a Primary Co-beneficiary?

Primary Beneficiaries receive the Death Benefit of a policy if there is no Primary Co-beneficiary. A primary beneficiary cannot be changed without the consent of the person who has ownership over the life insurance policy.

A Primary Co-Beneficiary receives a portion of death benefit and must not be changed without the consent of all other beneficiaries and co-beneficiaries. If there are multiple primary co-beneficiaries, then each one will receive a portion of the death benefit.

What is the difference between Secondary Beneficiary and Secondary Co-beneficiary?

The secondary beneficiary/co-beneficiary receives a portion of the life insurance policy if all primary beneficiaries/co-beneficiaries are deceased. For example, if the policy is split between two primary beneficiaries and one of them dies, the other would receive the death benefit. If both primary beneficiaries die, then the secondary beneficiary will receive a portion of the death benefit.

What happens when the owner of a policy dies before the insured person?

The policy will stay in force because the insured person is still living. The ownership of the policy will go to any listed contingent owner. If there is no owner listed, then the policy will become property of the policyowner's state.

Who gets life insurance if there no beneficiary?

The life insurance death benefit will be paid to the policyowner's state.

Can my child be the beneficiary of my life insurance policy?

You can name your child as a beneficiary; however you should always try to leave a death benefit to someone who is at least 18 years old, ensuring they care for your child and keep the money safe until the child is old enough to use it.

What is the minimum age a child inherit money?

There is no way for a kid to inherit anything, including money, property, or other assets, through a trust or will. If you wish to provide access to your funds to a minor while they are under the age of 18, you should contact an attorney.

How can I leave life insurance to my minor child?

A minor child does not qualify for a payout from an endowment policy. It is preferable to choose an adult guardian or set up a UTMA account instead of a trust. Naming the trust as the beneficiary is the greatest choice when creating a trust for your kid.

Are life Insurance proceeds taxable?

Life insurance proceeds are typically not taxable as income to an individual but can be taxed as part of your estate if the total amount being passed to heirs exceeds federal and state exemptions. You may face income and capital gains taxes if you decide to get surrender a policy for its cash value. You should always consult with a tax attorney.

How long after death do you have to collect life insurance?

There is no end date after the passing of the insured to collect the death benefit. Typically, the process takes 1-2 months before the life insurance company will make a payment.

Conclusion

Life insurance beneficiaries, policyowners, and death benefits can sometimes be confusing. When planning to provide for your loved ones, it is important to understand the basics specifically about the beneficiary designation process, tax implications of death benefits to heirs, and more.