Death without a named beneficiary

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PostPosted: Thu Jul 30, 2009 3:54 am   Post subject: Death without a named beneficiary  

There have been quite a few posts with this subject.



Many people have been saying that if there is not a named beneficiary, the proceeds get paid to the estate.



I chimed in and said that a policy could have a default beneficiary. I also said that I thought that most policies don't have a default beneficiary.



Anyway, I sold two policies today from two different companies and both of them on the application said what would happen to the money if no beneficiary was alive. In neither case would the money go directly to the estate.

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PostPosted: Thu Jul 30, 2009 4:15 am   Post subject:   

If the beneficiary designations are left blank the proceeds of the life insurance policy or annuity contract are paid to the Estate of the insured person.



That's Florida law.



Other states may have other distribution laws.



That being said....and since I'm from Missouri.... you'll have to SHOW-ME which state law says something different than what I wrote above.



Insurance company policies and procedures don't trump state law.



See THIS LINKY.



Quote:
222.13 Life insurance policies; disposition of proceeds.--



(1) Whenever any person residing in the state shall die leaving insurance on his or her life, the said insurance shall inure exclusively to the benefit of the person for whose use and benefit such insurance is designated in the policy, and the proceeds thereof shall be exempt from the claims of creditors of the insured unless the insurance policy or a valid assignment thereof provides otherwise.



Notwithstanding the foregoing, whenever the insurance, by designation or otherwise, is payable to the insured or to the insured's estate or to his or her executors, administrators, or assigns, the insurance proceeds shall become a part of the insured's estate for all purposes and shall be administered by the personal representative of the estate of the insured in accordance with the probate laws of the state in like manner as other assets of the insured's estate.


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PostPosted: Thu Jul 30, 2009 9:49 am   Post subject:   

Hi Gary..



Quote:
and the proceeds thereof shall be exempt from the claims of creditors of the insured unless the insurance policy or a valid assignment thereof provides otherwise.


What kinda assignment is taken as a valid assignment if the proceeds are being claimed by creditors?



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PostPosted: Thu Jul 30, 2009 12:16 pm   Post subject:   

A collateral assignment is where you are securing a loan from a lender and the lender requires the debt to be secured with life insurance before they will make the loan.



Small business owners do this all the time when borrowing money for business purposes. Today, there are a number of websites that will provide you with beneficiary collateral assignment information readily available.



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PostPosted: Thu Jul 30, 2009 4:57 pm   Post subject:   

This is language from a Florida application from a major insurance company.



"If no beneficiary is entitled to the payment at time of claim, the proceeds shall be made to the Owner, if living, or to the Owner’s estate."



Ex. John is the owner of a Florida life insurance policy on Mary.



The beneficary is Mary's daughter, Judy. There is no contingent beneficiary.



Judy died last year. Mary just died. The policy proceeds will be paid to John. If John was dead also, the policy would get paid to John's Estate.



If Mary was the owner of the policy with the same facts, it would have been paid to Mary's Estate.



There is nothing in what you linked that says that if no beneficiary is specifically named, the proceeds must be paid to the estate. It just says what happens if the money is paid to the estate. In fact, does it make any sense for it to go to the insured’s estate instead of the owner of the policy or to the owner’s family?

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PostPosted: Thu Jul 30, 2009 11:31 pm   Post subject:   

Quote:
Ex. John is the owner of a Florida life insurance policy on Mary.



The beneficiary is Mary's daughter, Judy. There is no contingent beneficiary.


Absurd.



In almost ALL life insurance policies written the OWNER and the INSURED are one and the same person.



John CAN'T "own" a policy on Mary WITHOUT there being an insurable interest. AND why on God's green Earth would John be the owner of the policy and be paying premiums so if Mary dies the death benefit is paid to Judy....Mary's daughter?



What is the relationship between John and Mary?



It would be absurd to think the husband is the policyowner, with the wife as the insured and their daughter is the PRIMARY beneficiary.



When the beneficiary designations are BLANK the proceeds are paid to “The Estate” of the OWNER of the policy.



Insurance Expert with all due respect you are engaging in tortured abstract logic.



I understand the technical point you’re making. If the beneficiary died, then the insured died, the proceeds would be paid to the owner. YES, but that’s BECAUSE the owner is the only person with the right to change the beneficiary designation in the first place.


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PostPosted: Fri Jul 31, 2009 12:59 am   Post subject:   

Gary, the majority of policies have the owner and the insured as the same person. However, to say "in almost ALL policies" simply isn't accurate.



I specifically didn't say what the relationship was between John and Mary because it doesn't matter in this context. The insurable interest only needed to exist at the time that the policy was purchased.



Examples of the owner and insured not being the same person:

Husband being the owner with spouse being insured.

Business owner being the owner with other partner being insured.

Business owner being the owner with key employee being insured.

Child being owner and insured being parent.

Parent being owner and insured being child.

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PostPosted: Fri Jul 31, 2009 1:03 am   Post subject:   

Quote:
It would be absurd to think the husband is the policyowner, with the wife as the insured and their daughter is the PRIMARY beneficiary.




Ex. John and Mary are married. John is the owner and was the beneficiary of the life insurance policy on Mary. John and Mary became very successful. John has no need for the money when Mary dies, so the beneficary was changed to their adult daughter, Judy. Sorry, Gary, but there is nothing absurd about this.
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PostPosted: Fri Jul 31, 2009 1:08 am   Post subject:   

Quote:
When the beneficiary designations are BLANK the proceeds are paid to “The Estate” of the OWNER of the policy.






Ex. John is the owner on the policy for Mary. The beneficiary designations are blank or the beneficiaries are deceased. Mary dies.



The policy proceeds CAN'T be paid to the "The Estate" of the owner. The owner is still alive. Living people don't have estates. The policy can be paid to the owner. It can't be paid to the estate of the owner unless the owner is dead.



For this reason, it would not make sense for any state to have a statute that says that the policy would have to be made "payable to the estate". When the owner and the insured are different people, paying it to the estate of the owner is impossible and paying it to the estate of the insured makes no sense at all.
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PostPosted: Fri Jul 31, 2009 1:12 am   Post subject:   

Quote:
I understand the technical point you’re making. If the beneficiary died, then the insured died, the proceeds would be paid to the owner. YES, but that’s BECAUSE the owner is the only person with the right to change the beneficiary designation in the first place.




Correct. It's this technical point that makes it most likely factually incorrect that the default beneficiary would ever automatically be the estate. It would have to be, like this policy, "the owner, if living, or the owner's estate, if the owner is deceased."
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PostPosted: Fri Jul 31, 2009 2:52 am   Post subject:   

The example above would create a taxable consequence. If John is the owner, Mary is the insured, and Judy is the primary beneficiary, you have a Goodman Triangle. This will result in the death benefit being taxable rather than income-tax free. Hopefully an agent would not set up a policy this way.

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PostPosted: Fri Jul 31, 2009 4:35 am   Post subject:   

Insurance Expert,



Arrow I have no idea what your point is with this thread. Rolling Eyes



It's not done the way you desribe EVER!



That's right,... I said, EVER.



I'll say it again and try to use stronger language. When the beneficiary designation is left blank on a life insurance policy or an annuity contract the proceeds are paid to "The Estate" of the owner of the policy.



E V E R Y T I M E.



Period.

End of story.



Please provide any state law to the contrary because I like to know which state has a distribution method for this situation outside of the Probate Court system.



PLEASE, I'm not asking for your opinion SHOW-ME the state law that supports your claims.



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PostPosted: Fri Jul 31, 2009 8:59 am   Post subject:   

Experts I've a question..... would a policy ever be issued where there is no named beneficiary? I mean, wouldn't it simply defy the purpose of maintaining life insurance if I don't have anyone to pass an asset after my death?


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PostPosted: Fri Jul 31, 2009 11:40 am   Post subject:   

Hi..



I guess Expert is only claiming that it's impossible to



pass it on to the estate when the owner and the insured



are two different people. So, I don't get the confusion



over here.



Steven

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PostPosted: Fri Jul 31, 2009 11:44 am   Post subject:   

Quote:
The example above would create a taxable consequence. If John is the owner, Mary is the insured, and Judy is the primary beneficiary, you have a Goodman Triangle. This will result in the death benefit being taxable rather than income-tax free. Hopefully an agent would not set up a policy this way.




You make a very good point. Let's assume that the agent wasn't stupid. This beneficiary change could have been made without the knowledge of the agent, or if the agent was involved, the beneficary change could have been irrevocable. By making it irrevocable it solves the problem of the Goodman Triangle. The completed gift would have taken place at the time of the beneficiary change. The value of the gift at that time could have been very little or perhaps nothing, thus solving the problem.



Thanks for that great observation.
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