In which situation would the insurance company usually take possession of the policyholder’s death benefit funds?

When the primary beneficiary dies before the insured, the insurance company typically may take possession of the death benefit funds if there are no contingent beneficiaries named in the policy. In this situation, the contract will specify that the death benefit goes to the insured's estate rather than directly to a beneficiary.

If the primary beneficiary predeceases the insured, and no alternate beneficiaries are designated, the lack of a designated recipient means the funds cannot be directly distributed to someone else. Instead, they would go through the estate, which may lead to delays in distribution and potential complications due to probate, but ultimately, the insurer is required to settle with the estate of the deceased insured.

This situation highlights the importance of naming contingent beneficiaries in an insurance policy, as it provides clarity and ensures that the death benefit will be passed on according to the policyholder’s wishes even if the primary beneficiary cannot receive it.