What happens to the proceeds of a life insurance policy if the sole beneficiary dies before the insured and no changes are made to the beneficiary designation?

When a sole beneficiary named in a life insurance policy dies before the insured and no changes are made to the beneficiary designation, the proceeds become part of the insured's estate. In this scenario, because the designation of the beneficiary is a key element of a life insurance policy, if that designated beneficiary is deceased, the benefits do not transfer to another individual automatically. Instead, they revert to the estate of the insured unless otherwise specified.

This outcome reflects the principle that if a beneficiary does not survive the insured, the policy proceeds will not go directly to the beneficiary's estate, as there may be legal implications regarding distribution. Instead, the life insurance benefit becomes part of the assets of the insured's estate, which will be subject to probate and distribution according to the terms of the insured's will or state intestacy laws if there is no will.

Understanding this mechanism is vital for policyholders, as it highlights the importance of keeping beneficiary designations up to date, particularly in light of significant life events like the death of a beneficiary.