Life Insurance Beneficiary Rules You Should Know

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ByMargaret Wack
Reviewed byMark Friedlander
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ByMargaret Wack
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Reviewed byMark Friedlander
Edited byRae Osborn
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Updated: May 22, 2024

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Your life insurance beneficiary is the person who receives the benefit of your policy after your death. This person is often a close family member, such as a spouse, parent or sibling. It's also possible to name multiple people as life insurance beneficiaries.

The type of life insurance policy you have and who you name as your beneficiary will determine how the payout process unfolds. Life insurance beneficiaries must first file a claim with the insurance company, after which insurers typically pay out claims within 30 to 60 days. For life insurance without a beneficiary, the policy’s proceeds may become part of the estate, which can complicate the distribution of funds.

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Rules for Choosing Life Insurance Beneficiaries

When you take out a life insurance policy, you can name a beneficiary or multiple beneficiaries. If you don’t name a beneficiary, your death benefit goes to your estate.

Most people designate their spouse, significant other, children or parents as beneficiaries, but 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.

Your life insurance policy is separate from your will or other aspects of your estate; it’s best 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 life insurance beneficiary. If your life insurance 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 can name multiple life insurance beneficiaries, both primary and contingent. 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 when you pass.

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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 life insurance 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. In cases of separation, life insurance beneficiary rules after divorce may require updating to reflect current relationships and obligations.

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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 minors as life insurance 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 life insurance 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 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. Beneficiary designations need manual updates to align with your current wishes. 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

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    Some beneficiary designations are irrevocable

    Some life insurance beneficiary designations are irrevocable, meaning 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 life insurance beneficiaries. You should think carefully before listing someone as an irrevocable life insurance 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. However, you can’t take out a life insurance policy on just anyone if you don’t have an insurable interest. For example, you wouldn’t be able to take out a life insurance policy on your co-worker.

Types of Life Insurance Beneficiaries

There are two main types of life insurance 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.

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 the people to whom the payout of your life insurance will go 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.

Revocable vs. Irrevocable Life Insurance Beneficiaries

Understanding the difference between revocable and irrevocable beneficiaries can significantly impact your estate planning and financial security.

  • Revocable: A revocable beneficiary offers flexibility, allowing you to make changes at any time without needing the beneficiary's approval. This adaptability is beneficial when life circumstances change, such as after a marriage, divorce or birth of a child.

  • Irrevocable: An irrevocable beneficiary provides a layer of certainty but at the cost of flexibility. Once you designate someone as an irrevocable beneficiary, you can't make any changes without their written consent. This type of beneficiary is chosen in cases involving alimony or child support agreements, where the beneficiary's financial security needs to be guaranteed.

The choice between revocable and irrevocable beneficiaries may have tax implications. Designating someone as an irrevocable beneficiary can influence the estate's tax liability. In some cases, an irrevocable beneficiary may be considered a gift recipient under tax laws, potentially subjecting the value of the insurance policy to gift taxes. The irrevocable status can sometimes remove the death benefit from your taxable estate, which could be advantageous for estate tax planning.

There could also be disadvantages. For example, if the irrevocable beneficiary's financial situation changes, you cannot redirect the funds to someone who might need them more without the beneficiary's written consent, potentially leading to less optimal tax outcomes for the new beneficiary.

Information You Need to Provide to Name a Beneficiary

When naming a life insurance beneficiary, you'll need to provide specific information to ensure a smooth transition of benefits. Here are some of the most common pieces of information life insurance providers require:

Full Legal Name

This helps avoid any confusion or legal issues that could arise from a name mismatch.

Relationship to the Policyholder

Establishing the connection between you and the life insurance beneficiary helps in the distribution process.

Social Security Number or Tax ID

These are used for identification and tax purposes, ensuring that the right person receives the benefit.

Contact Information

This includes the life insurance beneficiary's address, phone number and email to facilitate communication and the transfer of benefits.

Date of Birth

This confirms the life insurance beneficiary's age, which is especially important if the beneficiary is a minor.

Percentage of Payout

If you're naming multiple life insurance beneficiaries, specify what percentage of the death benefit each should receive.

Special Instructions

If you want to attach any specific conditions or stipulations to the benefit, make sure to include them.

You should consider the impact of life events, such as divorce, on your life insurance beneficiary designation. Changing life insurance beneficiaries after such events ensures that your policy reflects your current intentions.

Providing detailed, accurate information is even more important for those with minors as life insurance beneficiaries or considering irrevocable life insurance beneficiaries. This helps avoid complications and ensures that your wishes are honored. Consult your life insurance provider for any additional requirements they may have.

Rules for Death Benefit Payouts

To receive a life insurance payout, 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

    Life insurance 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. You might want to choose a percentage for each life insurance 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 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 benefit 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 split the payout between multiple life insurance beneficiaries in various ways. You may want to split it equally between multiple beneficiaries, divide it up by a certain percentage or divide the payment for the benefit of younger generations if one of your beneficiaries has passed away. You can change how your policy’s payout is split between life insurance beneficiaries at any time.

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    Per capita

    If you decide to divide your policy’s benefit per capita, you’re splitting it “per head” so that each life insurance beneficiary receives an equal sum. This might be a good idea if, for example, you’re naming your three adult children as life insurance 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 life insurance beneficiaries. For instance, you may want your spouse to receive 70% of the death benefit and your parents or children to receive 30%. This method of dividing the death benefit is used when you have more than one life insurance beneficiary with differing levels of financial dependence on you.

These distribution methods ensure your life insurance beneficiaries receive their intended shares in a manner that reflects your wishes and their needs. You can change life insurance beneficiaries and adjust these preferences to match life changes. Regular reviews and updates to your life insurance beneficiary designation are essential for your estate planning.

How a Divorce Affects 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 want your ex-spouse to remain on your policy as a beneficiary if you share joint custody of children, since your ex-spouse may be responsible for providing for them in the event of your death. Laws and life insurance beneficiary rules after divorce vary significantly by state. 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.

Life Insurance if There Is No Beneficiary

If you don't name a life insurance beneficiary, the death benefit typically goes to your estate. This triggers a legal process known as probate, where a court oversees the distribution of your assets. Probate can be a lengthy and often costly process that may delay the disbursement of the death benefit to your loved ones.

When the death benefit is part of your estate, it becomes accessible to creditors. This means that any of your outstanding debts could be paid off using the death benefit, reducing the amount that goes to your heirs.

How to Change Your Life Insurance Beneficiary

Life circumstances may change, and your life insurance beneficiaries should reflect those changes. Whether you've recently married, divorced, welcomed a new child or experienced a loss, these significant life events are signals to review and possibly update your life insurance beneficiaries. Here's a step-by-step guide to ensure that your life insurance benefits go to the right people at the right time.

Contact Your Insurance Provider

The first step in changing your life insurance beneficiary is to get in touch with your life insurance provider. They will guide you through their specific process, which can vary from one company to another.

Fill Out a Change Form

Your insurance provider will typically require you to complete a "Change of Beneficiary" form. This form legally documents your new choice of beneficiary. Make sure to fill it out accurately to avoid any future complications.

Submit Documentation

Along with the change form, you may need to provide additional documents for verification. This could include identification forms or legal papers, depending on the nature of the change and the provider's requirements.

Confirm the Change

Follow up with your insurance provider to confirm that they have updated your life insurance beneficiary information accurately. This final step ensures that your intentions are clearly documented and will be executed as planned.

Common Mistakes to Avoid When Choosing a Beneficiary

Selecting a beneficiary for your life insurance policy is a financial decision that requires thoughtful consideration and periodic review. Avoiding common mistakes can save your loved ones from legal hassles and ensure that your assets are distributed according to your wishes.

Here are some common pitfalls and how to sidestep them:

  • Not Updating Beneficiaries: Life is dynamic, and your life insurance beneficiary designations should reflect those changes. Failing to update beneficiaries after significant life events can lead to unintended consequences, such as an ex-spouse receiving the death benefit.
  • Naming a Minor Directly: Designating a minor as a life insurance beneficiary can be problematic since they're legally unable to receive life insurance proceeds directly. Instead of naming them outright, consider setting up a trust or appointing a guardian to manage the funds until they reach the age of majority.
  • Being Vague: Ambiguity in naming life insurance beneficiaries can lead to legal disputes. Use full names and provide additional identifying information to eliminate confusion.
  • Ignoring Spousal Rights: In community property states, spouses may have a legal claim to a portion of the death benefit. Failing to consider this can result in legal complications and may not align with your intended asset distribution.
  • Overlooking Contingent Beneficiaries: Naming a primary beneficiary is standard, but what if they predecease you or cannot accept the benefit for some reason? Name a contingent or secondary beneficiary as a backup to ensure that your assets are distributed as you intended.

FAQ: Life Insurance Beneficiary Rules

Unlike other types of insurance, like auto insurance or homeowners insurance, the point of a life insurance policy is not to protect the policyholder but to protect the beneficiary. Knowing the answers to some of the most common questions can better equip you to make decisions regarding your life insurance beneficiaries.

What is a beneficiary for life insurance?
Who can you name as a life insurance beneficiary?
Is your spouse automatically your beneficiary on life insurance?
What is a contingent beneficiary for life insurance?
Who receives the life insurance death benefit?
How does a divorce affect your life insurance policy?
Can you designate more than one life insurance beneficiary?
How do you split life insurance beneficiaries?
What if my chosen beneficiary passes away before me?
What happens to life insurance with no beneficiary?
What happens when life insurance goes to the estate?
What happens if the owner of a life insurance policy dies before the insured?
Do life insurance companies contact beneficiaries?
How is life insurance paid out to beneficiaries?
How long does a beneficiary have to claim a life insurance policy?
What happens if the beneficiary does not claim life insurance?
How do I change the beneficiary on life insurance?
Who can change the beneficiary on a life insurance policy?
Can a life insurance beneficiary be changed after death?
How do I find out if I am a beneficiary on a life insurance policy?

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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.