Am I the Beneficiary of a Life Insurance Policy? How to Find Out.

What are beneficiaries?

Beneficiaries are individuals or entities designated to receive the benefits or proceeds of a financial product or asset upon the death of the policyholder or account holder. The concept of beneficiaries is commonly associated with many financial instruments, including life insurance policies, retirement accounts, investment accounts, and certain types of bank accounts. 

That’s why you should know what’s a beneficiary, not just if you are one, but so they can add them to your own accounts.

What is a beneficiary for life insurance, and who qualifies?

A life insurance beneficiary is someone listed on a policy who will receive the payout  – also known as the death benefit – if the policyholder passes away. To qualify as a beneficiary, you must be designated by the policyholder. When someone opens up a policy, they decide who their beneficiaries are. If you're placed on the official list, you'll be designated as a life insurance beneficiary. 

In many cases, the policyholder is allowed to change who their life insurance beneficiaries are during the life of the policy. For example, you might divorce a spouse and wish to remove them. Or, you might have a child after your policy was opened and want to add them. 

One thing to note is that if a policy includes an irrevocable beneficiary, it may be harder to make changes. That’s because an irrevocable beneficiary is a designation that, once made, cannot be changed by the policyholder or account holder without the consent of that beneficiary. In other words, if you are named as an irrevocable beneficiary, that person relinquishes the right to alter or revoke that designation without your permission.

Who can you name as a beneficiary on life insurance?

For the most part, life insurance beneficiary rules leave who can change the beneficiary on a life insurance policy up to the policyholder's discretion. There aren't many regulations about who you can list as a beneficiary, except where minors are concerned. You can even name an organization, such as a business or trust, as your beneficiary. Policies also allow you to designate more than one beneficiary and contingent beneficiaries. 

What are beneficiaries who are listed as contingent able to claim? 

A contingent beneficiary receives the policy payout only if the primary beneficiary(s) can't be located or died before the insured.  So for example, a person might designate their grown child as a beneficiary, and their grandchildren as contingent beneficiaries in case the child passes away.

What happens to life insurance with no beneficiary? 

Where there is no beneficiary listed on the deceased person’s policy, the payout will go to the estate of the policyholder. The distribution of the proceeds will then follow the legal process of probate. Here's how it will work from there:

1. Probate process: The life insurance policy is reviewed during the probate process, which 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 or, if there is no will, according to state intestacy laws.
2. Estate distribution: If there is a valid will, the life insurance proceeds will be distributed according to the instructions in the will. If there is no will or the will does not address the life insurance proceeds, the state's intestacy laws will determine how the assets, including life insurance proceeds, are distributed among the deceased person's heirs.

Probate can be a time-consuming and potentially costly process. The life insurance proceeds may not be immediately available to the heirs, as the probate process involves legal proceedings, creditor claims, and other administrative steps. For example, creditors may file claims against the deceased person's estate to satisfy outstanding debts, thus reducing the amount available for distribution to heirs.

The probate process is a matter of public record. This means that the details of the deceased person's assets, including the life insurance policy and its proceeds, become part of the public record.

To avoid potential complications and delays associated with probate, it’s important that policyholders designate specific beneficiaries for their life insurance policies. This helps to ensure a more direct and efficient transfer of the proceeds to the intended recipients, bypassing the probate process.

Regularly reviewing and updating beneficiary designations is also essential to reflect any changes in personal circumstances, such as marriage, divorce, or the birth of children.

How do you prove you're a beneficiary?

If a loved one passes away and you think you’re their life insurance beneficiary, proving it will require  two things: 

1. You must be listed as a beneficiary within the policy.
2. You must be able to verify your identity with a valid driver's license or state ID. 

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

Suppose you weren't notified ahead of time by the policyholder. This difficulty gets compounded because life insurance companies may not be immediately aware if a policyholder passes away (depending on state requirements, an insurer will typically search the death master file for its policyholders at least annually). It's common for beneficiaries to be the ones to inform the insurance company when this happens. This is one common reason for unclaimed life insurance benefits. 

To determine if you're a life insurance beneficiary, you need to find out if someone close to you held a life insurance policy. If they didn't tell anyone, it could involve research through their files and finances. When a loved one passes away, it's a vulnerable and painful time, making it important to always approach this process with gentleness and compassion. Some tactics you can try include:

Identify if the person in question had a policy

• Check their emails for communications or payment confirmations with a life insurance company.
• Look through personal filing systems for documentation of a policy or receipt.
• Use the National Association of Insurance Commissioners (NAIC) life insurance policy locator service. 
• If you're listed on the individual's banking accounts, contact the bank and look for financial records that include a life insurance provider. 

Contact the company that issued the policy

• Once you've identified a policy, contact the company that issued it and ask them if you're a beneficiary. At this point, you may need to provide proof of identity and state your relationship with the policyholder.

Do life insurance companies notify beneficiaries?

Life insurance companies sometimes notify beneficiaries, but they often have imperfect knowledge. In many cases, life insurance companies may not be aware that a policyholder passes away or may not have current contact information for beneficiaries. In these instances, they're unlikely to reach out to any beneficiaries. 

However, there are life insurance beneficiary rules that insurers must follow. States require insurers to verify that their policyholders are still alive at least once a year, and to make a reasonable effort to locate the beneficiary once they become aware of the policyholder's passing.

I am beneficiary of a life insurance policy. What now?

Now that you fully understand “what are beneficiaries?” you’re probably wondering what to do if you’re named as one. To file a claim on the policy, you'll need the death certificate of the policyholder, a copy of the policy, and proof of your identity. With these items on hand, contact the insurer, inform them of who you are, and ask to file a claim on the life insurance policy. 

Do beneficiaries pay taxes on life insurance policies?

In many cases, life insurance payouts aren't required to be reported and taxed as income. In fact, that is one of the key advantages of opening a life insurance policy. 

If you're looking for an online life insurance policy of your own, check your rates with a fast, free online quote. Through Ethos, applicants qualify for no medical exam life insurance, but answering some medical questions is still required.