There should always be a contingent beneficiary on a life insurance policy. There are times when someone simply does not want the proceeds from a life insurance policy.
It sounds like an unlikely scenario: someone gets a call that an uncle named them in his life insurance policy and now they are being sent a check for hundreds of thousands of tax-free dollars. However, if the primary beneficiary does not want the money, for whatever reason, what happens?
A recent nj.com article asks “Who would get this life insurance payout?” The article explains that an individual who’s designated as a beneficiary of a life insurance policy, has a right to disclaim the proceeds.
In effect, the beneficiary is telling the life insurance company “Thanks, but no thanks. I don't want to accept the money.”
However, when the primary beneficiary disclaims the proceeds, he or she doesn’t have the right to decide who should be paid instead. If you waive your rights to the money, the life insurance company will treat the circumstances as if you were a beneficiary who died before the insured. You don’t have a say in the matter because you’re dead—for purposes of this insurance policy.
The insurance company will then pay the proceeds to the contingent beneficiary.
The way to disclaim insurance proceeds will vary among insurance companies. However, a person must contact the life insurance company and make it aware of their desire not to receive the proceeds.
Some insurance companies may want to see a letter from the primary beneficiary, while others will request that the primary beneficiary fill out their own form.
However, if you’re waiving the life insurance proceeds because you’re concerned about taxes, remember that life insurance benefits are not taxable.
While you’re at it, make sure your own beneficiary designations are up-to-date on all of your own life insurance policies.
Like most insurance policies, a life insurance policy is a contract and the terms of the contract override the content of a will. If you want to make a change in beneficiaries of your policy, you’ll need to contact the insurance company and follow their procedures for making changes. You cannot make this change simply by changing your will. An estate planning attorney can help you make sure that all of your assets with beneficiaries are aligned.
Reference: nj.com (June 22, 2018) “Who would get this life insurance payout?”