Most people do not realize that a Will likely does not control who collects on a life insurance policy. The beneficiary named on the policy supersedes the Will. So long as the policy owner correctly designated a beneficiary on the policy, that designation controls.
If you are the primary beneficiary
If you are the primary beneficiary named on a life insurance policy, claiming the death benefit is straightforward. To start the process, you must report the death to the insurance company. The insurance company will then provide claim forms that you complete and submit along with a certified copy of the death certificate. Within a matter of weeks, the insurance company will process the claim. You can choose how you would like to receive the proceeds, whether in a lump sum or over a specified period. There is no tax advantaged reason not to take the lump sum.
If the primary beneficiary predeceased the policy holder
What happens if the primary beneficiary is no longer living? All insurance policies allow the policyholder to name a backup, called a contingent beneficiary. If the primary beneficiary dies before the policyholder, the contingent beneficiary receives the death benefit. The process is essentially the same, except that the contingent beneficiary must provide the death certificate of the primary beneficiary in addition to the death certificate of the policyholder.
If there is no designated beneficiary
A life insurance policy that fails to name a beneficiary and/or contingent beneficiary must pass through probate. This means someone must first be appointed by the Surrogate’s Court before the proceeds can be distributed. If the policyholder died with a Will, the nominated Executor would have to file a probate petition. If the insured died without a Will, a close relative would apply to become the decedent’s Administrator.
If there was a Will, the beneficiaries of the life insurance policy would be those named in the Will. If there was no Will, then the decedent’s next-of-kin collect the death benefit according to the intestacy statute. New York’s intestacy laws are very strict. If the decedent was married with no children, the spouse inherits 100%. If married with children, the spouse inherits the first $50,000 of the estate plus half, with the remaining half split amongst the children. If a child predeceased the decedent, their children inherit their portion. The rules get more complicated the further down the blood line you must go – parents, siblings, all the way to cousins.
If an ex is named as beneficiary
Divorces can be tumultuous, and New York State recognizes that in the aftermath, policyholders may neglect to remove an ex spouse as beneficiary. In New York, a spouse is automatically revoked as the beneficiary on a life insurance policy after a divorce. However, many divorce settlements mandate that a spouse remain as beneficiary. It is best to check the divorce decree to determine whether the ex can collect on the death benefit.
It is important to make sure that every life insurance policy names a primary and contingent beneficiary-unless there is a good reason not to do so. For example, if you have minor children you would designate a trust. Absent some similar compelling reason, insurance proceeds should not go through probate court. It is worth reviewing retirement and life insurance policies every few years to make sure the designations are correct. Moreover, an estate planning attorney can help ensure that your designations fit in with your overall estate plan.