A beneficiary is the person or entity you name in a life insurance policy to receive the death benefit. You can name:

  • One person
  • Two or more people
  • The trustee of a trust you’ve set up
  • A charity
  • Your estate

If you don’t name a beneficiary, the death benefit will be paid to your estate.

Two “levels” of beneficiaries

Your life insurance policy should have both “primary” and “contingent” beneficiaries. The primary beneficiary gets the death benefits if he or she can be found after your death. Contingent beneficiaries get the death benefits if the primary beneficiary can’t be found. If no primary or contingent beneficiaries can be found, the death benefit will be paid to your estate.

As part of naming beneficiaries, you should identify them as clearly as possible and include their social security numbers. This will make it easier for the life insurance company to find them, and it will make it less likely that disputes will arise regarding the death benefits. For example, if you write “wife [or husband] of the insured” without using a specific name, an ex-spouse could claim the death benefit. On the other hand, if you have named specific children, any later-born or adopted children will not receive the death benefit—unless you change the beneficiary designation to include them.

Besides naming beneficiaries, you should specify how the benefits are to be handled if one or more beneficiaries can’t be found. For example, suppose you have two children and you name each one to receive half of the death benefit. If one of the children dies before you do, do you want the other child to get the entire death benefit, or the deceased child’s heirs to get his or her share?

If the death benefit goes to your estate, probate proceedings could delay distributing the money, and the cost of probate could diminish the amount available to your heirs.

Choosing beneficiaries, and keeping those choices up-to-date, is an important part of owning life insurance. The birth or adoption of a child, marriage or divorce can affect your initial choice. Review your beneficiary designation as new situations arise in order to make sure your choice is still appropriate.

Different types of beneficiary

Irrevocable beneficiary

The first type of beneficiary is an Irrevocable Beneficiary. Irrevocable means that the beneficiary cannot be changed without his or her consent. All beneficiary appointments should be made with careful thought and consideration but naming an irrevocable beneficiary is even more so because it is not easily changed. Make sure you and your Financial Advisor go over all the considerations before designating an irrevocable beneficiary. Typically there are documents to sign and submit to the insurance companies head office showing you understand the implications of an irrevocable beneficiary.

Revocable beneficiary

The beneficiary appointment that we are most familiar with is the Revocable Beneficiary. With a revocable beneficiary, you can name an individual or several people or an organization as the beneficiary on your contract but because it is revocable you can change it at any time. Every institution has a document for you to name or change your beneficiary. You must fill these documents in and sign them each time you make a change. Remember that divorce doesn’t change your beneficiary on your products nor does re writing your will. Therefore, it’s important to always keep your appointments up to date at all times.

Contingent beneficiary

In my 21 years in the insurance and investment world the Contingent Beneficiary is often a forgotten appointment. When it comes to naming a beneficiary, you should always consider making a contingent beneficiary. A contingent beneficiary is an appointment of someone who will receive the benefits of your product if your primary beneficiary dies before you do. An example is naming children with a trustee as contingent beneficiary on life insurance plans. Also, you can appoint adult children, other family members or whomever you chose to receive the proceeds if your primary beneficiary has passes away before you. One very good reason to make a contingent beneficiary appointment is that if the time comes down the road that your primary beneficiary has passed on before you, you might not be in any condition or ability to appoint a new primary beneficiary at that time.

Revocable Beneficiary vs. Irrevocable Beneficiary

Life insurance beneficiaries can be revocable or irrevocable. Revocable beneficiaries can be changed if necessary at any time during the policy owner’s lifetime. This is similar to a revocable living trust, which can also be changed as long as the trust grantor is still living.

An irrevocable beneficiary is permanent. If there are multiple beneficiaries named to a life insurance policy (e.g., a primary beneficiary and several contingent beneficiaries), then they would all need to consent to any changes involving an irrevocable beneficiary.

Who Can Change the Beneficiary on a Life Insurance Policy?

In the case of a life insurance policy that has one or more revocable beneficiaries, the owner of the policy can change the beneficiary designations at any time. This is something that may be necessary if a beneficiary passes away or if the primary beneficiary is a spouse and the marriage ends in divorce.

If irrevocable beneficiaries are named to a life insurance policy, then the policy owner would need the consent of the beneficiary and any contingent beneficiaries to make a change. For that reason, it’s important to think carefully when choosing policy beneficiaries.