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Your beneficiary is the person who receives the benefit of your life insurance policy after your death. In many cases, this person is a close family member, such as a spouse, parent or sibling. You can name multiple people as beneficiaries of your life insurance policy.

What type of life insurance policy you have and who you name as your beneficiary will determine how the payout process unfolds. Beneficiaries must first file a claim with your insurance company, after which insurers typically pay out claims within 30 to 60 days.

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Rules for Choosing Beneficiaries

When you take out a life insurance policy, you have the option of naming a beneficiary or multiple beneficiaries. If you don’t name a beneficiary, your death benefit goes to your estate. That can make it more difficult for any loved ones who depend on you financially to access those funds after your death. Payouts are often delayed for a policy with no beneficiary since a probate court will have to determine where the funds should go.

Most people commonly designate their spouse, significant other, children or parents as beneficiaries, but there’s no rule that determines who is allowed to be your beneficiary. You could name a sibling, a close friend or even a trust. When choosing your life insurance beneficiaries, you should think about where those funds would have the greatest impact in the event of your death.

It’s important to keep in mind that your life insurance policy is separate from your will or other aspects of your estate; it’s necessary to name a beneficiary for your life insurance policy even if you’ve already set up a will.

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    You can refuse to name beneficiaries.

    It’s not strictly necessary to name a beneficiary. If your life insurance policy has no beneficiary, proceeds will become part of your estate, and the probate court will oversee how funds are distributed. However, we don’t recommend this option since it makes it more difficult for your loved ones and dependents to access the funds they need.

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    You can have multiple beneficiaries.

    You are allowed to name multiple primary or contingent beneficiaries. For example, if you’re married, you might name your spouse as a primary beneficiary. If you have adult children, you might also name all of your children as contingent beneficiaries, who would receive the payout if your spouse is no longer alive.

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    In some states, you must name your spouse a beneficiary.

    In community property states, you may be required to name your spouse as a beneficiary if you have one. If you name someone other than your spouse as a beneficiary, your spouse may still be entitled to 50% of the proceeds regardless of who is named.

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    Minors can be beneficiaries.

    Many parents take out life insurance policies to help provide for their children in the event of their death. You can name minor children as beneficiaries, but they won’t be able to receive the benefit directly if they’re under 18 years old. For this reason, it’s usually best to designate a spouse or other caregiver as the beneficiary.

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    Charities and organizations can be beneficiaries.

    While it’s common to name a loved one as a beneficiary, it’s not strictly necessary. You can also name a charity or other organization as a beneficiary. This might be a good option if you’re already confident that your loved ones would be financially secure if you were to pass away.

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    Pets cannot be beneficiaries.

    A beneficiary must be able to accept an inheritance and sign documents. For this reason, you can’t legally name your pet as a beneficiary of your life insurance policy. However, you can set up a trust designating the pet’s guardian as the beneficiary.

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    You must have consent.

    If you’re purchasing a life insurance policy for another person with the intent to name yourself as a beneficiary, you must first obtain their consent. You must also have insurable interest, meaning that you depend on the individual and would be financially impacted by their death. In most cases, it’s a good idea to have an individual, such as a parent, take out a policy on their own behalf and name you as a beneficiary.

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    Beneficiary lists must be updated manually.

    If you experience a life-changing event, like a divorce, your beneficiary list will not be updated automatically. You must manually instigate a change in your policy’s beneficiary. In some cases, you may want to keep an ex-spouse as a beneficiary. For example, if they would be responsible for caring for your children in the event of your death, you may still wish to keep them on your policy.

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    Some beneficiary designations are irrevocable.

    Some beneficiary designations are irrevocable, meaning that they can’t be changed unless the beneficiary agrees to forfeit their right. Some policyholders choose to name certain family members, such as dependent children, as irrevocable beneficiaries. However, you should think hard about whether or not you truly need to list someone as an irrevocable beneficiary since it can be very difficult to change in the future.

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A party has insurable interest when they depend on the insured financially and would have difficulty supporting themselves in the event of the policyholder’s death. For example, your spouse and any dependent children you might have most likely have insurable interest. On the other hand, you can’t take out a life insurance policy on just anyone if you don’t have insurable interest. For example, you probably wouldn’t be able to take out a life insurance policy on your co-worker.

Types of Beneficiaries

There are two main types of beneficiaries: primary beneficiaries and secondary or contingent beneficiaries. Primary beneficiaries are the main beneficiaries of an insurance policy. Secondary or contingent beneficiaries only receive a death benefit if the primary beneficiary or beneficiaries cannot receive it. Naming a contingent beneficiary can help to ensure that your policy’s death benefit goes where you want it to if your primary beneficiary is no longer around.

Primary Beneficiary

Your primary beneficiary is the first beneficiary of your life insurance policy. You can have more than one primary beneficiary. For example, if you have two younger siblings, you might name both as primary beneficiaries. Primary beneficiaries are who the payout of your life insurance will go to first.

Secondary or Contingent Beneficiary

Contingent or secondary beneficiaries only receive a payout from your life insurance policy if your primary beneficiary is deceased. For example, you might name your spouse as a primary beneficiary and your children as secondary beneficiaries. If your spouse passes away before you do, your children will receive the payout as secondary beneficiaries in the event of your death.

Rules for Death Benefit Payouts

In order to receive a payout from a life insurance policy, beneficiaries must first file a claim with the life insurance company. The primary beneficiary is the first designated recipient of these funds. However, if the primary beneficiary is no longer living, secondary or contingent beneficiaries are eligible to receive the benefit. Minors can’t receive death benefits, but a custodian can oversee the funds if a minor is designated as a beneficiary.

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    Beneficiaries must make a claim to receive a death benefit.

    Beneficiaries must file a claim with your insurer to receive a payout. The process isn’t automatic. If there is more than one beneficiary for a policy, each beneficiary must make a separate claim to receive their portion of the funds.

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    The primary beneficiary is the first person (or, if multiple primary beneficiaries, persons) to receive the death benefit.

    If the life insurance policy has a designated primary beneficiary, they will be first in line to receive the death benefit for a life insurance policy. If the primary beneficiary is deceased, a secondary or contingent beneficiary is eligible to file a claim.

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    The contingent beneficiary gets the money if the primary beneficiary is deceased.

    Contingent beneficiaries can only receive a payout if the primary beneficiary is unable to do so. In most cases, this means that the primary beneficiary has passed away. They may also be unreachable or have declined to accept the payout.

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    You can choose how the funds will be dispersed.

    Policyholders can choose how they want to distribute life insurance payouts. For example, you might want to divide the payout equally between the named primary beneficiaries. On the other hand, you might want to choose a percentage for each beneficiary to receive. For example, 50% of a payout might go to your spouse, and 50% may be split amongst your children.

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    Minors can’t receive death benefits.

    Many people purchase life insurance to be able to provide for their families in the event of their death. While minors can be named as beneficiaries of a life insurance policy, they can’t receive death benefits until they turn 18. Instead, the proceeds will go to their legal guardian. You may also be able to set up a trust to ensure that your funds are used to provide for your children, grandchildren or other dependent minors.

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There are certain circumstances that would prohibit a death benefits payout to beneficiaries. These include application fraud, nonpayment of premiums, contestable circumstances or not providing proper documentation (such as a death certificate).
Mark Friedlander, Director, Corporate Communications, Insurance Information Institute

How Payouts Are Split Between Beneficiaries

You can choose to split the payout between multiple beneficiaries in a variety of ways. You may want to split it equally between multiple beneficiaries, divide it up by a certain percentage or split the payment so that it branches off to younger generations in the event that one of your beneficiaries has passed away. You can change how your life insurance policy’s payout is split between beneficiaries at any time.

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    Per Capita

    If you decide to split your policy’s benefit per capita, you’re splitting it “per head” so that each beneficiary receives an equal sum. This might be a good idea if, for example, you’re naming your three adult children as beneficiaries. If a beneficiary passes away, the payout is divided equally between the remaining beneficiaries.

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    Per Stirpes

    Per stirpes means “by branch.” If you decide to divvy up your policy’s payout per stirpes, it means that a death benefit will pass along a family lineage. For example, say you list your three adult children as primary beneficiaries of your life insurance policy. If one of your children passes away, then their children (your grandchildren) would be eligible for their parent’s death benefit.

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    Specific Percentage

    In some cases, you may want to allot different percentages of the death benefit to different beneficiaries. For example, you may want your spouse to receive 70% of the death benefit and your parents or children to receive 30%. This method of splitting the death benefit is often used when you have more than one beneficiary with differing levels of financial dependence on you.

How Does a Divorce Affect Your Life Insurance Policy?

If you get divorced, it doesn’t automatically change your life insurance policy’s beneficiary. To remove your former spouse as a beneficiary, you’ll need to manually update your life insurance policy. Even if you get divorced, you may still be legally required to share a portion of the death benefit with your ex-spouse. You may also want your ex-spouse to remain on your policy as a beneficiary in some cases. For example, if you share joint custody of children, your ex-spouse may be responsible for providing for them in the event of your death. Different states have different laws surrounding marriage, divorce and life insurance, so it’s a good idea to consult an attorney to ensure you know your obligations.

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If you don’t update your life insurance policy after a divorce, your ex-spouse might receive more of the death benefit than you’re comfortable with. After any major life event, including divorce, you should review your life insurance policy to ensure that the named beneficiaries still align with your wishes.

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Frequently Asked Questions About Life Insurance Beneficiary Rules

The world of life insurance can be a little confusing, with plenty of unfamiliar jargon and niche cases. Unlike other types of insurance, like auto insurance or homeowners insurance, the point of the policy is not to protect the policyholder but rather to protect the beneficiary. Knowing the answers to some of the most common questions can better equip you to make decisions regarding your own life insurance beneficiaries.

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About Margaret Wack

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Margaret Wack is a freelance writer who covers insurance, saving, investing, banking, and more. Margaret earned a bachelor's degree in classics, comparative literature, and poetry from Smith College and a master's degree from St. John's College.