What is a life insurance beneficiary?

A life insurance beneficiary is the person or entity you designate to receive your policy's death benefit when you pass away. You can choose to have one or multiple beneficiaries, and they can be family members, charitable organizations, legal entities — it's your decision.

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How do I choose a life insurance beneficiary?

The process of selecting a beneficiary to receive your life insurance death benefit is an intimate and personal choice. While the decision is ultimately yours, most people designate a spouse, child, charity, or multiple beneficiaries as their primary beneficiary.

Let's look at some life insurance beneficiary options and rules:

  • Partner/spouse

    In addition to the emotional impact on your partner, your passing will also have a financial bearing. Without your income, it may be difficult for them to maintain the lifestyle they once had. Selecting your significant other as the primary life insurance beneficiary can help them cover expenses such as a mortgage, long-term debt, funeral costs, and day-to-day needs.

  • Child

    The passing of a parent can significantly alter a child's life, especially if the child is left without someone to rely on financially. You can name a minor child as your beneficiary, but there are multiple legal avenues and implications of doing so. For instance, the benefit could be placed in a trust managed by a custodian until the child is 18 or 21, or it could be designated for uses that benefit the minor child. Speak with legal counsel before naming a minor child as a beneficiary to determine the best option for your family. Learn more about naming a minor as a life insurance beneficiary.

  • Charities

    If no one is financially dependent on you, you might consider a favorite charity as the beneficiary of your death benefit. By designating the organization of your choice as your primary life insurance beneficiary, you ensure the payout will be donated to them upon your death.

  • Multiple beneficiaries

    Policyholders often want to split their death benefit among several people or entities. If you choose to have multiple beneficiaries, you'll need to specify the benefit amount or percentage each should receive.

What happens to life insurance with no beneficiary designated?

If you don't name a beneficiary, your life insurance death benefit might be paid to your estate, which kicks off a lengthy probate process that can delay payment to any heirs. Plus, if paid to your estate, your death benefit may be used to pay for the cost of settling your estate and any outstanding debts. Learn more about life insurance without a beneficiary.

What are the different types of life insurance beneficiaries?

There are two main types of life insurance beneficiaries: Primary and contingent.

What is a primary life insurance beneficiary?

The primary beneficiary is the person or entity that's entitled to your death benefit. You may choose to name multiple primary beneficiaries — you'll just need to decide what portion of your death benefit will be paid to each primary beneficiary.

What is a contingent life insurance beneficiary?

While it's essential to designate a primary beneficiary, it's also important to establish a contingent life insurance beneficiary. If your primary beneficiary passes away before you or can't be located, the contingent beneficiary will receive the payout. As a standard life insurance beneficiary rule, you must explicitly identify each beneficiary with their full name and Social Security number.

Pro tip:

Do you live in a community property state? If so, you'll need your spouse's consent to designate a primary beneficiary other than them. The following states have community property designation, which makes spouses equal owners of each other's assets and debts: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

What is the difference between a revocable beneficiary and an irrevocable beneficiary?

A revocable beneficiary is a beneficiary that can be removed or have their portion of the death benefit changed without informing them. Most beneficiaries are revocable beneficiaries in that the policy owner can remove them or change their benefit allocation as they see fit.

An irrevocable beneficiary is a beneficiary that cannot be removed or have their portion of the death benefit altered without their consent. Irrevocable beneficiaries may apply in cases where a divorced person bought a life insurance policy during their marriage and are required to name their former spouse as an irrevocable beneficiary as part of the divorce agreement. An irrevocable life insurance trust may also be named as an irrevocable beneficiary of a death benefit to ensure the money goes to the trust.

To designate someone as an irrevocable beneficiary, it's typically best to ask your insurance company before buying a policy. You may also be able to add or name an irrevocable beneficiary on an existing life insurance policy, but this may vary from insurer to insurer.

Who can change the beneficiary on a life insurance policy?

As the policyholder, only you — or someone who holds durable power of attorney for you — can change your life insurance beneficiaries. However, if your policy names an irrevocable beneficiary, you will also need to get that beneficiary's consent before making changes. If you have a revocable beneficiary, you can change your designated person or entity without their consent.

How do I change my life insurance beneficiary?

There are specific scenarios in which you may decide to change your beneficiary, ranging from marriage or divorce to the birth or adoption of a child. Whatever your reason, there are general life insurance beneficiary rules you must follow. For instance, if you decide to make a change, simply altering your will to reflect the new beneficiary won't be enough. To do so properly, you must request the change with your life insurance company by submitting the new beneficiary's information, typically online or with a form.

Whether you're considering getting a life insurance policy or making an update, plan out how you'd like to provide for your beneficiaries, and make your selections sooner rather than later.

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