You don’t have to sign anything to become the beneficiary of a life insurance policy. The owner can list whomever he likes. Life insurance pays out in times that are typically very emotional and difficult for the survivors. There are plenty of reasons you might refuse to take the payout from a life insurance policy. You have the right to waive your claim to the proceeds, and the insurance company will then pay out as if you had died immediately before the insured.
Life insurance policies are contracts that obligate the insurance company to pay a certain amount to the beneficiary upon the death of the insured. The owner of the insurance policy has the right to name a beneficiary and make subsequent changes. A beneficiary can be a single person, multiple people or a class of people -- all children, for example. The owner can also designate a contingent beneficiary to receive the proceeds if the primary beneficiary dies before the insured. Should you be the primary beneficiary and refuse to take the proceeds, the company will pay out to the contingent beneficiary.
One of Several
You might be one of several named beneficiaries or part of a general class. Insurance companies might allow the owner to assign unequal portions of the benefit such as one-third to you and two-thirds to the insured’s spouse. If specific ratios aren’t included, the benefit pays out equally among the named beneficiaries. If you decide not to take your portion, it passes over you.
By Branch or By Person
There are two different methods by which the company determines to whom your portion passes. The insured can specify at the time whether it should go by the branches of family or by person. In cases where a beneficiary predeceases the insured -- which is how insurance companies handle you waiving your claim – the beneficiary’s decedents get a share. If the insured opted for the by branch method, called per stirpes, then your children would split your portion of the payout. The by person method, called per capita, would split the total payout among your children and the other beneficiaries.
No Beneficiary Listed
When the company has no record of a designated contingent beneficiary, it will pay the proceeds out according to the terms of the policy. Typically the company will pay directly to the insured’s estate if there’s no named beneficiary, but the insurer will try to find a living spouse, parents, children or grandchildren to pay out first. Should the policy pay out to the estate, the money will have to go through probate and be subject to any possible estate or inheritance taxes it might otherwise avoid.
Sean Butner has been writing news articles, blog entries and feature pieces since 2005. His articles have appeared on the cover of "The Richland Sandstorm" and "The Palimpsest Files." He is completing graduate coursework in accounting through Texas A&M University-Commerce. He currently advises families on their insurance and financial planning needs.