Joint life insurance policy… who gets the money??

Received this question from a reader and felt it was worth posting as a Q & A for other readers… 

Q 

My question is, if both die at the same time, what happens? I’ve been shopping around for a life policy for me and hubby and we could not decide if we should get one each, or a joint one. I don’t know if there is a payout if both die. If the answer is yes, does the payout go to the estate? And what if if both die and no ones knows this policy exists? Thanks

A 

If you have a joint policy and both of you die, then the policy pays on BOTH lives. This is the case if one person dies before the other (as is normally the case) or if both die at the same time (as sometimes happens in an accident). 

Who does the payout go to?   The simple answer is “…whoever are named as beneficiaries in the policy”. (Note that under some policies the beneficiary is defined as the owner(s) of the policy so you may not necessarily see the term ‘beneficiary’.)

Example… lets suppose John and Mary have bought a joint policy. 

Mary may be named as the beneficiary in the event of John’s death and lets say John is the beneficiary in the event of Mary’s death.

If Mary and John die together, then there are two payouts.  The payout on John’s life goes to Mary’s estate and the payout on Mary’s life would be paid to John’s estate. 

If John dies first, Mary receives a payout.  If Mary dies first, John receives a payout. 

But what happens after John dies and Mary receives a payout?   

Mary has a decision to make… to keep the policy going or not. If she continues to keep it going she must continue to make the payments and (since John is dead) she should nominate a new beneficiary… maybe a child? This should be a simple administrative matter. 

The problem with a joint policy that we identified in an earlier blog post is where the parties separate or divorce. Splitting the policy can become a real problem because all owners of the policy must agree… see earlier blog post.

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7 Comments

  1. Helen said,

    July 17, 2008 @ 12:10 am

    hi

    just for clarification can the policy owner name a beneficiary for the payout to go to on the policy ??
    Or does policy just state the name of the person insured but the policy owned by the beneficiary??

  2. Ed said,

    July 17, 2008 @ 10:35 am

    Helen, the Owner is the beneficiary.

    If you change the Owner, you automatically change the beneficiary.

    Obviously the insured person can’t be changed :-)

  3. Mike said,

    December 20, 2008 @ 12:23 am

    Helen Ed is right if any one change the condition then beneficiary is also changed.

  4. Debt Free     said,

    April 10, 2009 @ 7:40 am

    Great post. Gives me what I have been looking for…

  5. Emma said,

    June 29, 2009 @ 8:11 am

    I have a question about life insurance and divorce – my father had a joint life insurance policywith my mother and they divorced about 15 years ago my mother remarried but my dad newver changed the policy and continued to pay the premiums my dad then died but my mother never made a claim and shortly after she also died leaving this policy unclaimed. Who can claim??

    Reply
    It’s impossible to answer this question with any certainty without reviewing the policy document.
    My best guess is this… if the policy was kept up to date until your father died, and if your mother was the beneficiary of that policy, then your mother was entitled to claim on the policy. If that were the case, and your mother has since died, then the executor of your mother’s estate should be able to claim. The payout would go to your mother’s estate.

  6. Abby said,

    August 26, 2009 @ 3:12 pm

    Good answer, the example sums it up nicely!

    Abby

  7. Peter said,

    February 11, 2012 @ 2:56 am

    Ok, I need some clarification. I thought that the owner of a policy is the person paying the premiums, while the beneficiary is the person or entity that receives the proceeds from the policy. If I get a life insurance policy, I’m the policy owner and must make the premium payments each year. My wife is the beneficiary and has no responsibility to make premium payments. If I die, she gets the money. Isn’t this true?

    Reply
    The policy offered by Pinnacle Life includes only the “insured person” and the “Policy Owner”. There is no separate “beneficiary”. In this case (as you correctly point out) the Policy Owner is the person responsible for paying the premiums. The Policy Owner is also the ‘beneficiary’.
    Ed

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