If I don’t have a beneficiary, where does my life insurance go?

Naming a beneficiary for a life insurance policy is one of the key steps in creating your policy. Who does life insurance go to if no beneficiary is named, though? What happens if your beneficiary dies before you do?

We’ll answer these questions ahead.

Policy Ownership

Life insurance policy ownership is a bit more complicated than it might seem upon first glance. There are several kinds of policy ownership structures, and each one will result in different payouts. Here’s a breakdown of the different policy ownership structures you may encounter.

Self-Ownership

Self-ownership is the most common and easiest to understand of all the life insurance policy ownership structures.

With self-ownership, the person who is insured under the life insurance policy is also the owner. You can change the policy as required without consent since you are the sole owner of your own life insurance policy.

From here, you can set your beneficiaries, the amount they will receive, or even nominate yourself in the case of TPD or income protection. Not all forms of life insurance require death or terminal diagnoses to trigger a payout.

Individual Ownership

Individual ownership occurs when a person owns a life insurance policy on someone other than themselves. This is often a spouse or family member who relies on another person’s income or support to live.

As the owner of the policy, you can amend it when you see fit. You can name yourself or other people as beneficiaries, add money to the policy, or reduce the amount you pay.

Joint Ownership

Joint ownership, as the name suggests, is when two people own a life insurance policy together. This usually occurs in a family where a married couple takes out a policy on the primary breadwinner.

In this case, the two owners of the policy need to make changes together. They both need to consent to any beneficiary additions along with increases or decreases in coverage.

Cross-Ownership

Cross-ownership is when two people – almost always spouses – take life insurance policies out on one another. They each own the policy on the other person and will make decisions on how to divide the payout to the beneficiaries.

Most of the time, cross-ownership occurs between two people in a relationship. Sometimes, though, two people with joint ventures or investments will have a cross-ownership life insurance policy. This will protect the interests – such as mortgage payments – of each party if the other dies or becomes unable to work.

Superannuation Ownership

Some people choose to purchase life insurance through their superannuation. This is a common option because the premiums come out of your pre-tax income, saving you money over time.

In these cases, the owner of the policy is technically your super fund. The downside is that any changes you would like to make have to go through them, which adds an extra step to the process.

Corporate Ownership

Key man life insurance covers key stakeholders within an organisation. This can include those in executive positions, or anyone who makes a big impact to the business—therefore posing a risk to the company’s well being should anything happen to them.

It takes a lot of time and money to recruit, hire, and train a new person to fill the role of one of the top positions in a company. Key man life insurance can be a solution to this risk, as it covers a company’s losses if the insured is unable to work or passes away.

These policies are corporate-owned, which means the company will pay the premiums and receive benefits if the worst happens.

Choosing Your Beneficiaries

Most of the time, the beneficiaries of a personal life insurance policy are going to be those who rely on the insured for care – financial or otherwise. This is most often children and spouses.

When you create your life insurance policy and assign beneficiaries, you will also be able to decide who gets what percentage of the benefits.

If the insured has a husband and two kids, for instance, then they may decide to grant their husband 50% and each child 25%. Or, they can elect to give their husband 70% and each child 15%. The way the insured divides these up will depend on their individual or family needs.

Where Do Life Insurance Payouts Go With No Beneficiary?

So that leads us to the question: who does life insurance go to if no beneficiary is named? The answer is that they go directly to the policyholder.

Some life insurance policies, such as TPD and income protection, do not require the policyholder to die to receive a payout. In these cases, with no beneficiary, your policy will pay the set amount directly to you.

The same is true for death cover, although it will go to your estate rather than to you as an individual. From there, the amount will be divided up based on your will or at the discretion of your executor.

Final Thoughts

Hopefully, we were able to clear things up about policy ownership and beneficiaries along with answering the question: who does life insurance go to if no beneficiary is named.

Life insurance is one of the only ways to ensure that those who depend on you will be able to sustain their lifestyle if the worst happens. Locking premiums in at a young age will ensure that you’re not paying high premiums over time and give you the best chance of sustaining life insurance as you age.

Still have questions about where your payout goes if you don’t have beneficiaries? Speak to one of our friendly advisers for more information and to compare cover.

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