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What happens to life insurance with no beneficiary?

September 1, 2022
Family with a kid setting up a life insurance protection

Many of us take out life insurance, wishing to protect our loved ones if we die.

It’s not uncommon for people to have even multiple life insurances. While this might sound strange at first glance, the case for this is quite straightforward. You take out your first life insurance in your 20s, considering your current income. But after 10 years, your income has grown significantly, as well as the standard of living of you and your family. The coverage of your old life insurance is not enough to ensure peace of mind in this new situation of an improved lifestyle, so you decide to take out a second life insurance with a larger payout for better protection. 

Some people even have more than two life insurances as their life progresses. But who do you appoint as a beneficiary to these insurances, and how can a life insurance policy have no beneficiary at all? 

How can a life insurance policy have no beneficiary?

The obvious answer is that many people designate their partner as a beneficiary, but over the years, they completely forget about that detail. Then, if the partner passes away, there is no living beneficiary, so in effect, your life insurance doesn’t have a beneficiary. 

That is unless, of course, you’ve named a contingent beneficiary, also known as a secondary beneficiary, and of course, unless they haven’t passed away too. 

So in this situation, there is a life insurance policy and there are no beneficiaries. What happens in that case? Let’s see. 

Life insurance without a beneficiary 

The question of life insurance without a beneficiary is quite straightforward. In this case, the life insurance is added to your estate – consider this as your inheritable wealth – and distributed to the heirs according to the local legislation and laws

The process related to life insurance without a beneficiary is similar to the other part of the estate – bank accounts, real estate, investment portfolios, etc.

What happens to your estate after that is a completely different topic. It depends on which state in the USA or in which country you are, whether you have an estate plan or not, etc. 

For example, if you are in the USA and you don’t have an estate plan, your estate will probably be distributed to your heirs via a process called probate. If you have an estate plan, the inheritance will be carried out according to your instructions in the plan. 

The variables are too many to be described here, but the most important thing to know is that if your life insurance doesn’t have a beneficiary, it becomes part of your estate, along with the other assets in it.

The case for the “invisible” beneficiary

Quite often, life insurances have a beneficiary who is not aware of the fact, either because the owner of the insurance policy has forgotten to inform her or him about it or because the beneficiary has forgotten. It’s not uncommon for insurances to be taken out decades before the owner passes away. Unfortunately, many insurance companies don’t proactively reach out to the beneficiaries, even if they have their contact information.

So in this case, your life insurance doesn’t go to your beneficiary, but it also doesn’t go to your estate because nobody knows about it or because your loved ones don’t know the details – with which company it’s taken or, in the case of expats, in which country. 

The alarming reports of billions of dollars in unclaimed assets, many of which are life insurance payouts, are clear indications of the magnitude of the problem. 

Can estate planning help?

Not really. The problem with estate planning is that even if it is crafted by the best attorneys, and even if it has a catch-all clause, if you fail to update it continuously as you grow and change your estate, then your loved ones simply won’t be aware of the existence of your life insurance or won’t be able to identify and locate it. 

And of course, updating your estate plan every few years is a time-consuming and fairly expensive process. 

Is there, then, a solution to that problem? 

Digital legacy management services to the rescue

Luckily, there is a convenient and easy solution. Digital legacy management services enable users to easily catalog and manage their digital and financial assets, including their insurance policies. 

The best part is that some of these digital inheritance services automatically detect when a fatal event has happened to the owner, and when such an event is detected, the services proactively notify the family members about the assets designated to them. 

This way, your loved ones are aware of your digital and financial assets, including your life insurances. Your money goes to your family, per your wishes, instead of being abandoned in financial institutions and insurance companies

Will digital inheritance services be the future of asset protection and inheritance practice? Only time will tell, but our prediction is that the chances are pretty high. 

Editorial Team
Guardians of your digital footprint, the DGLegacy® editorial team is dedicated to helping you protect your assets and secure your family’s future with expert insights on digital legacy planning and inheritance. Have a story to share? We’d love to hear it! Contact us at editors@dglegacy.com.