What Is a Life Insurance Beneficiary?
A beneficiary is the person or entity that receives a payout from an active life insurance policy after you die. You can select more than one beneficiary. When choosing a beneficiary, it is important to consider who will be financially impacted by your death.
Life Insurance Beneficiaries: The Basics
A life insurance beneficiary is the person or organization that receives a policy’s payout — or death benefit — after you pass away.
A beneficiary only receives money from a life insurance company if your policy is active at the time of your death.
- A legal guardian for your minor children
- Your estate
- A trust
- A charity
Keep in mind that some states have laws regulating who you can and can’t name as a beneficiary.
You’ll need to provide the insurer with some basic information about your selected beneficiary, including their full name, birthday and Social Security number.
It’s wise to revisit your policy every few years to ensure your designations are correct and your contact information is up to date.
Primary and Contingent Beneficiaries
A primary beneficiary is the first person you want to receive the life insurance money when you die. Many people designate their spouse or partner.
A contingent, or secondary, beneficiary is the person who receives the death benefit if the primary beneficiary is deceased.
It’s important to note that a contingent beneficiary won’t receive death benefit money if any of the primary beneficiaries are still alive.
You should always name a contingent beneficiary, according to Life Happens, a nonprofit dedicated to educating consumers about the importance of life insurance.
Otherwise, leaving behind life insurance without a living beneficiary may cause money to go to someone you never intended your policy to benefit. It may also require a court-appointed administrator to sort things out.
You can select multiple primary beneficiaries and multiple contingent beneficiaries.
If you name multiple beneficiaries, you can decide how much of the payout each party receives. You can divvy up the death benefit as a percentage or as a specific dollar amount per person.
Revocable vs. Irrevocable Beneficiaries
There are two types of beneficiary classes: Revocable and irrevocable beneficiaries.
With a revocable beneficiary, policy owners can change designations at any time without the consent of a previously named beneficiary.
In contrast, when someone is named as an irrevocable beneficiary, the policy owner cannot change the designation without consent from the original beneficiary.
In other words, the entitlements of an irrevocable beneficiary are guaranteed.
Children are often named as irrevocable beneficiaries. A court can also order someone to purchase a life insurance policy and designate an ex-spouse as an irrevocable beneficiary in order to cover child support or alimony payments.
Mistakes to Avoid
Selecting beneficiaries is an important decision. The life insurance money they receive can help cover your loss of income, pay for funeral arrangements or finance a college education.
However, simple mistakes can complicate your good intentions.
- Naming a Minor as a Beneficiary
- Legally, a child under 18 years old cannot access a life insurance death benefit. That’s why you should appoint a legal guardian for your children in your will and designate this person as your life insurance beneficiary. Otherwise, a court will name a guardian on your behalf who has oversight of the money until the child comes of age.
Another option is to establish a trust that can receive the life insurance proceeds until the child is 18 or older.
- Forgetting to Update Your Designations
- Life changes, so it’s important to keep your beneficiary designations updated over time. Major life events — including the birth or adoption of a child, death of a beneficiary or divorce — are critical times to revisit your life insurance policy. If you don’t, a large payout may end up with the wrong person. This can happen if your ex-spouse is still on the policy, or a legal guardian is named when a child is no longer a minor.
- Assuming a Will Covers Any Updates
- A life insurance policy is a legal document that bypasses probate. Changes to your will do not affect your life insurance beneficiaries. For example, if your will names your current wife as the beneficiary of your estate, but your life insurance policy still lists your ex-wife as the beneficiary, the death benefit must be paid to your ex-wife.
- Neglecting to Tell People About Your Policy
- It's wise to tell your beneficiaries about your life insurance policy. If they don’t know it exists, or their information isn’t correct on the form, they may never make a claim with the insurer. You may also want your beneficiaries to know how much the policy is worth and where they can locate contract details after your death.
5 Cited Research Articles
- Danise, A. (2020, June 26). 10 Things Life Insurance Beneficiaries Should Know. Retrieved from https://www.forbes.com/sites/advisor/2020/06/26/10-things-life-insurance-beneficiaries-should-know/#6998369650ec
- Rosenberg, E. (2019, December 11). Your life insurance beneficiary determines who gets the money upon your death, and your will can't override it. Retrieved from https://www.businessinsider.com/personal-finance/what-is-a-life-insurance-beneficiary
- Austin, A. (2019, April 29). Who Can I Name as a Beneficiary on My Life Insurance Policy? Retrieved from https://lifehappens.org/blog/who-can-i-name-as-a-beneficiary-on-my-life-insurance-policy/
- National Foundation for Credit Counseling. (2018, July 12). Assign Beneficiaries Correctly for Life Insurance — Ask an Expert. Retrieved from https://www.nfcc.org/resources/blog/helping-family-best-use-life-insurance-money-youre-gone/
- Insurance Information Institute. (n.d.). What is a beneficiary? Retrieved from https://www.iii.org/article/what-beneficiary#:~:text=A%20beneficiary%20is%20the%20person,Two%20or%20more%20people