Life Insurance Beneficiaries: How to Choose the Right Person


Updated: May 22, 2024

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Consider your decision's implications before deciding who to put as a beneficiary on your life insurance policy. Choosing a beneficiary for life insurance affects your legacy and makes a statement to those left behind.

You should choose someone who would benefit the most from the money. Most people can’t choose just one person as their life insurance beneficiary, so they select multiple people to divide the death benefit.

Who you should put as your beneficiary depends on your situation, state laws and the people you have in mind. While there are no life insurance beneficiary rules dictating who you can designate, choosing a minor has specific implications. You can also change your life insurance policy beneficiary at any point. Just make sure whoever you name knows when and where to file a claim.

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Key Takeaways

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A life insurance beneficiary receives part or all of the proceeds of the death benefit upon your death.

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You can name multiple beneficiaries, but you should consider who would benefit the most when deciding.

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Life events like marriage, childbirth, death and business changes should trigger a review of your life insurance beneficiary designations to see if changes are needed.

What Is a Beneficiary and How Does It Work?

A life insurance beneficiary is the person or persons who will receive funds from your life insurance policy if you die. As part of the life insurance contract, you designate a beneficiary name, and only this person can file a claim for the death benefit.

Almost anyone can be a beneficiary of a life insurance policy, and you can name more than one person.

Types of Life Insurance Beneficiaries

Choosing the right type of beneficiary is essential in ensuring that your life insurance benefits are distributed according to your wishes. Here are the common types of life insurance beneficiaries:

  • Primary Beneficiary: This is the main person or persons who will receive the death benefit. If alive at the time of the policyholder's death, the primary beneficiary in life insurance gets the entire benefit.

  • Contingent Beneficiary: Also known as a secondary beneficiary in life insurance, this person or entity receives the death benefit if the primary beneficiary is deceased or unable to claim the benefit.

  • Revocable Beneficiary: This type of life insurance policy beneficiary can be changed at any time by the policyholder without the beneficiary's consent, offering flexibility in managing the policy.

  • Irrevocable Beneficiary: Unlike a revocable beneficiary, changes to an irrevocable beneficiary require the consent of the beneficiary of a life insurance policy, providing a more secure arrangement for them.

Who Can Be a Beneficiary?

You can name anyone as a beneficiary for life insurance — from family members to friends, to organizations and even trusts. The choice often reflects the policyholder's personal relationships, financial responsibilities, values and long-term goals. Here are some expected beneficiaries:

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    Spouse or Partner

    Often, the first choice for many, a spouse or partner is typically the person most financially dependent on the policyholder.

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    Children

    You can name adult children or minors, though minors may require additional legal considerations, such as a trust or guardian.

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    Other Family Members

    You can choose siblings, parents or other relatives, reflecting close family connections or financial responsibilities.

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    Friends

    You can have close friends as your beneficiaries, particularly in the absence of immediate family or in recognition of a significant personal relationship.

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    Business Partners

    In business-related life insurance, the policyholder can name partners or key employees to ensure business continuity.

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    Charitable Organizations

    Naming a favorite charity as the beneficiary of a life insurance policy can be a way to leave a legacy and support important causes to the policyholder.

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    Trusts

    You may opt to name a trust as your beneficiary to have more control over how the death benefit will be used, particularly for complex family or financial situations.

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    Estate

    The policyholder may also choose their estate as a life insurance policy beneficiary, though this may have legal and tax implications.

How the Benefits Are Distributed

Who to add as a beneficiary is just as important as how to divide up life insurance beneficiaries. You can choose one of three different methods. Your choice will determine how the life insurance funds will be distributed if you name multiple beneficiaries.

Method
Description

Per Capita

Dividing up your death benefit per capita, or by “head,” means dividing it equally between named persons. If one or more beneficiaries die before you, their share gets divided equally among the other beneficiaries.

Per Stirpes

When passing down proceeds generationally, most choose the per stirpes, or “branch,” method. With this method, you name your adult children, and their share goes to their children if they die before you, instead of being divided among their siblings.

Specific Percentage

You can also choose a specific percentage for each beneficiary to receive. For instance, your spouse might get 50%, your child 25% and your best friend the remaining 25%. You can choose any percentage between your beneficiaries if they add up to 100%.

The method you select when adding a life insurance beneficiary is personal. The per stirpes method is the preferred method if you want to protect your grandchildren if they were to lose a parent.

A trust may be the better solution if you want to put specific contingencies on how the money is used, like care for a dependent child or so your grandchildren don’t waste the money while they’re young.

When you name a trust, the funds go there rather than directly to a person or your estate. You can detail how the money should be used, so you’re still in control even after you’ve passed on.

Whichever method you choose, remember that it’s not set in stone, and you can make changes at any time.

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What Happens if You Don’t Choose a Beneficiary?

When you fill out a life insurance application, part of the process is adding a life insurance beneficiary. If you choose not to add a beneficiary to life insurance, the death benefit proceeds become part of your estate. This means the probate court will oversee how the funds are distributed, and you lose control over who gets the money.

If you have named a beneficiary or beneficiaries, giving them relevant information, including what happens when you are a life insurance policy beneficiary is essential. If they don’t have the information to file a claim or the insurance company can’t locate them because you didn’t provide enough information, the proceeds could become unclaimed property in your state.

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The Merriam-Webster definition of a beneficiary is “a person or thing that receives help or an advantage from something: one that benefits from something.” In the case of life insurance, the beneficiary has an advantage by receiving some or all of the death benefit proceeds when you pass away. With this in mind, being thoughtful and choosing your life insurance policy beneficiary can help you choose a benefactor if you don’t already have someone in mind.

Step-by-Step Guide to Choosing Your Life Insurance Beneficiary

Usually, people choose their spouse or domestic partner, parents, children, business partners, charities or trusts as beneficiaries. When deciding who should be the beneficiary of your life insurance, list the essential people in your life and think about how your death would affect them.

You will likely want to choose those who will benefit the most and honor your wishes if you have specific desires for the funds. Consider these steps when choosing a life insurance beneficiary if you're unsure.

1
List the people who matter most to you.

Make a list of the most important people in your life. These could be your spouse, children, grandchildren, other relatives, business partner, pet or favorite charity.

2
Write down how your death would affect each person financially.

Next, consider how your death will impact each person or organization financially. Envision what would happen if you died suddenly and could no longer offer financial support.

3
Highlight who would benefit the most financially.

Consider how money from your life insurance policy would benefit them. Would the funds prevent your business partner from closing up shop? Would your spouse be able to stay home to raise the kids while they’re young? Could the proceeds help your best friend care for your pets until it’s their time to go?

4
Consider how your choice will affect those not chosen.

While you can choose multiple beneficiaries, there may be someone left behind. Consider how your choice will affect those you didn’t choose and if that could negatively impact those chosen.

5
Ask before naming someone as your beneficiary.

When you have your shortlist of possible beneficiaries, reach out to each person. Find out how they feel about being a beneficiary and if they want to be named, especially if it means they will be responsible for your children, pet or business.

The process of buying life insurance is relatively straightforward, but choosing a beneficiary for life insurance may be challenging for you. Completing this step-by-step process can help you choose your beneficiaries and who is best suited to receive the benefits.

If you decide to have multiple primary beneficiaries consider which distribution method fits best. The same goes for contingent beneficiaries if you choose to have them. There isn’t a right or wrong way to choose your life beneficiary, but completing this process can help you make the best choice for you.

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Though it can seem like an enormous undertaking, remember — you can change your beneficiary at any time. As your life changes, always keep this in the back of your mind so you can change your beneficiary if needed. You can change your beneficiary for free with your life insurance company as many times as you need to.

How to Choose a Life Insurance Beneficiary In Different Circumstances

Where you are in life, and your unique circumstances can dictate how you choose a life insurance beneficiary. Consider these different situations to help you select who should be the beneficiary of your life insurance.

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    Married With Kids

    Overwhelmingly, those married with kids choose their spouse as their primary beneficiary for life insurance. Parents or guardians for your minor children listed in your will would be the best choice as secondary beneficiaries.

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    Married With No Kids

    Most people married with no kids choose their spouse or domestic partner as their primary beneficiary. Your parents, a favorite charity, close friends, siblings or other people you wish to provide financial support for could be options as contingent beneficiaries.

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    Single With Kids

    Consider your kids or the person/people taking over guardianship as the primary beneficiary. Your ex-spouse is another option. You could name your parents or siblings as contingent beneficiaries.

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    Single With No Kids

    Most single people with no kids will name their parents or siblings as primary beneficiaries. Someone who will have to pay off your debts or your funeral is another option.

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    Someone With Multiple Family Obligations

    You can name each as a primary beneficiary if you’re responsible financially for several family members. Or, you could divide them between primary and secondary beneficiaries.

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    A Business Owner

    As a business owner, you want your business to continue after you’re gone. You can designate a key person as your primary beneficiary to avoid closing the business or laying off employees.

Your life situation may make deciding who to add as a beneficiary an easy choice or complicate it if you have many people you feel obligated to. If you want a minor child to be your primary beneficiary, you should know the life insurance company cannot pay directly to them.

Instead, it may be best to open up a custodial account and name the account as the primary beneficiary. You could also name a trusted person who will be your child’s guardian after you’re gone.

Though you can name multiple people as your primary and secondary beneficiaries, the more people you name, the less money each receives. If you have specific requirements for how the funds should be used, creating a trust and naming it as your beneficiary is the best way to ensure your desired outcome.

Considering your current lifestyle and needs can help you determine who to add as a primary or secondary beneficiary to your life insurance.

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If you’re single or won’t have financial obligations after death, signing up for charitable gift life insurance is another option. This type of life insurance designates your preferred charity as the beneficiary instead of a person or trust.

Factors to Consider When Choosing a Beneficiary

Choosing a beneficiary for your life insurance policy isn't just about naming someone; it's about ensuring that your wishes are carried out and that the financial needs of your loved ones are met. Here are some key factors to consider when selecting a beneficiary:

  • Financial Needs and Stability: Assess the financial needs and stability of potential beneficiaries. You may prioritize those with greater financial needs or dependents. Consider factors like current income, financial responsibilities and future financial prospects. This assessment can help ensure that the death benefit serves its intended purpose, providing support where it's most needed.

  • Age and Legal Status: Be mindful of the age and legal status of beneficiaries, especially when considering minors or individuals with special needs. Minors may require a legal guardian or trust to manage the funds, while individuals with special needs may benefit from a special needs trust to preserve eligibility for government assistance.

  • Multiple Beneficiaries: If naming multiple beneficiaries, consider how you want to divide the benefits and the relationships between the beneficiaries. Clear communication and thoughtful division can prevent misunderstandings and conflicts among beneficiaries. Consider using percentages rather than fixed amounts to accommodate changes in the policy's value.

  • Contingent Options: Think about naming contingent beneficiaries as a backup, ensuring that the benefit is paid even if the primary beneficiary is unable to claim it. Contingent beneficiaries step in if the primary beneficiary predeceases you or declines the benefit. This adds a layer of security, ensuring that the death benefit reaches the intended recipients even in unexpected circumstances.

  • Legal and Tax Implications: Understand the legal and tax implications of your choices, particularly when naming trusts or non-family members. For example, naming a trust as a beneficiary can have unintended tax consequences if not properly structured. In some cases, the trust may be subject to higher tax rates or required to take distributions over a shorter period, potentially leading to a larger tax burden. Additionally, if you name a non-spouse beneficiary, such as a friend or a sibling, the death benefit may be subject to estate taxes if it exceeds the federal estate tax exemption limit.

Common Mistakes People Make When Choosing a Life Insurance Beneficiary

When choosing a beneficiary for life insurance, people make some common mistakes that can be avoided. Don’t fall into these pitfalls when adding a beneficiary to life insurance.

1
Not being specific enough.

When you add a life insurance policy beneficiary, you want to make sure the life insurance company can get in touch with them and verify they are the correct person. Give as many identifiable details as you can, such as their full name, current address, phone numbers, date of birth and Social Security Number.

2
Naming a minor as a beneficiary.

Minors can’t receive a death payout from an insurer directly. You can set up a trust or legally appoint a guardian for the child and name them as the beneficiary of a life insurance policy to get around this.

3
Not directing your distribution method when naming multiple primary or secondary beneficiaries.

If you choose multiple beneficiaries, you should be specific about the death benefit distribution method. This is where you divide up the proceeds per capita, per stirpes or by percentages.

4
Assuming your will dictates your life insurance proceeds.

While both a will and a life insurance policy are legal contracts, a will cannot supersede or control life insurance payouts. If you change your will but don’t update your life insurance beneficiary designations, your insurer will determine who gets the money.

5
Accidentally creating a taxable event.

Usually, life insurance proceeds are tax-free. However, there are situations where the death benefit becomes taxable, like having different people named as the owner, named insured and beneficiary. Talk to your financial advisor if you're in this situation to ensure you aren’t creating a taxable event.

6
Not updating your beneficiary information.

People move, change names and get new contact information. Other changes may include removing a former spouse or legal guardian if your child is no longer a minor. When situations change or your beneficiary’s contact information is no longer valid, don’t forget to update your life insurance policy.

7
Not telling someone you named them as a beneficiary.

Talking about death can be a touchy topic that many prefer to avoid. But if you name someone as a beneficiary for life insurance, make sure you tell them. Give them details like the insurance company and agent handling your policy, how much coverage you have, what position you listed them in and how to contact the insurer to file a claim.

8
Not thinking about a beneficiary on government assistance.

If your beneficiary is a government assistance recipient, proceeds from a life insurance policy could affect their eligibility and how much they can qualify to receive.

9
Know your state laws.

While there aren’t rules for naming a beneficiary, married people living in community property states need to understand their state laws. 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. You may also have to sign a waiver to make the change.

These common mistakes can complicate things for the person receiving a life insurance death payout. Consider these scenarios when deciding who you should put as your beneficiary, especially if it could cause negative consequences for them.

If you choose an organization to leave funds to, you need to be specific with the organization's full name, address and tax ID number.

Avoid naming “my children” as beneficiaries, especially if you have children from a previous marriage. Make sure your will matches your life insurance policy and make changes on both as needed, as they are separate legally binding contracts.

By avoiding common mistakes when choosing a life insurance beneficiary, you can ensure the insurance company distributes the funds correctly when you die.

When Should You Update Your Beneficiary Choice?

You should update your life insurance beneficiary designations when life events change. While not all life situations warrant a beneficiary change, consider how the change affects the person or persons you have named as a life insurance beneficiary.

While most life insurance companies require you to fill out and submit a beneficiary change form in person, by fax or mail, some allow you to do it online. Ladder Life is one insurer that lets you add, delete or modify your beneficiary online through your account. Here are several scenarios when you should update your beneficiary name.

Scenario
Reason for Updating

Marriage

If you’re getting married or remarried, you may need to update your primary beneficiary to your new spouse and remove your old beneficiary. You may also want to change your secondary beneficiary.

Divorce

If you and your spouse are divorcing, you might want to change the beneficiary of your life insurance. You might change it to your parents, siblings or a trust you have set up for your minor children.

Death of a Beneficiary

If one or more of your beneficiaries dies, you should update your life insurance policy.

Retirement

When retirement is looming, you’ll want to evaluate if changes need to be made, especially if guardians are still named for minor children.

Birth of a Child

If you have more children after you take out a life insurance policy, you may want to add their names to the guardianship or trust, even if that doesn’t change your beneficiary name.

Additional Debt

Whether you’re buying a house or taking out student loans, you should review your life insurance policy. You may need to update your coverage in addition to your beneficiary, especially if someone is responsible for the debt after you die.

Paid Off Debt

If you pay off a debt but have someone listed because they would be financially responsible, it might make sense to change your beneficiary unless you still want them to receive the proceeds.

Key Business Changes

If you’re a business owner with a key person listed as a beneficiary and they leave the company, you probably want to update your beneficiary to someone else who would take over the business.

Though not all life changes require a beneficiary update, some do. Consider these events and whether they impact your choice of beneficiary. Some scenarios may also require coverage changes, like when you get married, take on debt or pay it off and if you have more children.

A beneficiary change is usually straightforward, as long as you have the specific details about the person you’re adding as a beneficiary. You can change your beneficiary whenever the need arises.

Choosing a beneficiary is just one step in buying life insurance. Choose wisely and consider adding a contingent beneficiary if something happens to your primary beneficiary.

Expert Advice on How To Choose A Beneficiary

  1. What factors should someone consider when choosing a life insurance beneficiary? What is your goal in buying life insurance should help you answer who will be the beneficiary.
  2. What advice would you give to someone who is unsure about whom to choose as their life insurance beneficiary?
  3. Based on your professional experience, what are some common mistakes individuals make when choosing a life insurance beneficiary, and what steps can be taken to avoid them?
Jonathan D. Breeden
Jonathan D. BreedenAttorney at Law, Owner of Breeden Law Office

Frequently Asked Questions

You have questions, like “who should I put as my beneficiary?” and we have the answers. Here are responses to the most frequently asked questions about choosing a beneficiary for life insurance.

Who should I choose as my life insurance beneficiary?
What is a life insurance beneficiary?
Can I change my life insurance beneficiary?
What happens if you don't have a beneficiary on your life insurance?
Can a life insurance company refuse to pay a beneficiary?
How long does it take for a beneficiary to receive the death benefit?
What happens if my beneficiary passes away before me and I don't have a contingent beneficiary?
Who can be a life insurance beneficiary?
What is a primary beneficiary?
Does a beneficiary have to be 18?
Is your spouse automatically your beneficiary on life insurance?
Can a child be a contingent beneficiary?
Can the owner of a life insurance policy be the beneficiary?
Do you need a social security number for a life insurance beneficiary?
How do you split life insurance beneficiaries?
On a life insurance policy, who is qualified to change the beneficiary designation?
Can a spouse override a beneficiary on a life insurance policy?
Can a life insurance beneficiary be changed after death?

About Mandy Sleight


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Mandy Sleight is a licensed property, casualty, life and health insurance agent with 20 years of experience in the industry. She has worked for major insurance companies like State Farm and Nationwide, and most recently as the Operations Coordinator for a startup employee benefits company.

Sleight holds a business administration and management degree from the University of Baltimore and a master's in business administration from Southern New Hampshire University. She uses her vast knowledge of insurance and personal finance to create easy-to-understand and engaging content to help readers make smarter choices with their budgets and finances.


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