Life insurance: Do your heirs a favor and check your policies, wills from time to time

Life insurance can be a complicated topic under the best circumstances. However, things can quickly become more complicated than you bargained for. Recently, our consumer advocates received an inquiry about what happens to a life insurance policy payout if the person who is named as the beneficiary has died. 

In Washington, the life insurance payment would go to the beneficiary/ies named on the policy. If the person named as beneficiary has died, the money would go to the policyholder’s estate. The person named as the estate’s representative would distribute the money in accordance with the terms of the policyholder’s will. If there are no terms laid out in the policyholder’s will, the designated personal representative is responsible for deciding how to distribute the assets. The personal representative is obligated to act in the best interest of the estate rather than his own best interest. 

Insurance companies are not obligated to follow the terms of a policyholder’s will and typically refuse seeing a person’s will even if someone offers to share it because they don’t want the responsibility of trying to split an insurance payout among multiple parties.

However, many consumers do not have a will or don’t have enough assets to require the estate to go through probate. In that case, the life insurance company would send the money to the Washington state Department of Revenue’s unclaimed property.  

Another factor is whether the consumer was married and living in a community property state at the time s/he bought the policy. In community property state, including Washington, spouses are entitled to 50 percent of a life insurance policy’s proceeds, even if the spouse isn’t listed as a beneficiary of the policy.    

If the policy lists more than one beneficiary and one or more has died at the time of the policy’s proceeds are claimed, there’s a chance the decision will be made by a court.  

The lessons here are:

• Review your insurance policies periodically to take a look at your beneficiaries.
• Review your will periodically to take a look at the terms.
• If you don’t have a will, make one. You can use an attorney or you can find free will templates online. If you do your own will, Washington state law requires that you get it notarized or have two people witness you signing it. It doesn’t need to be filed until after you die, and it’s a good idea to give your personal representative(s) a copy along with your heirs. It’s also a good idea to keep a copy for yourself somewhere safe that is not at your home, in case of a natural disaster or fire. Do not keep the only copy of your will in a safe, because your heirs likely will need a court order to open your safe to see your will.

If you have a complicated estate or property holdings, it is best to consult an attorney to make sure your wishes are documented.