The beneficiary designation tells the insurer who should receive the death benefit.
When you own a life insurance policy, the beneficiary designation is one of the most important parts of the contract to keep current. It identifies who is intended to receive policy proceeds after the insured's death, subject to the policy terms and applicable law.
A beneficiary can often be an individual, more than one person, a trust, an estate or another eligible entity. What is permitted and how a designation must be made depends on the insurer, policy and applicable rules.
Beneficiary rights, claim requirements and payment options can vary. Policy terms and applicable law control.
What is the difference between a primary and contingent beneficiary?
A primary beneficiary is generally first in line to receive the applicable death benefit. A contingent beneficiary is generally designated to receive proceeds if no primary beneficiary is eligible to receive them under the policy and applicable rules.
Can I name more than one beneficiary?
Often, yes. Policies commonly allow an owner to designate multiple beneficiaries and specify how the proceeds should be divided, subject to the insurer's procedures and policy terms.
This is only an illustration. Insurer forms and rules determine how beneficiary shares and contingencies are recorded and applied.
What do “per stirpes” and “per capita” mean?
These terms can affect how proceeds are distributed when a named beneficiary dies before the insured. In general, a per stirpes designation may direct a deceased beneficiary's share through that beneficiary's family branch, while a per capita approach generally distributes proceeds among surviving beneficiaries within the applicable class.
The exact effect can depend on the policy wording, insurer procedures and applicable law. Because beneficiary language can have legal consequences, consider obtaining qualified legal advice when the intended distribution is complex.
What if the beneficiary is a minor?
A minor can present additional considerations because an insurance company may not be able to pay a large death benefit directly to a child. Depending on the circumstances and applicable law, a guardian, custodian, trust or other arrangement may be involved.
Simply naming a minor without considering how proceeds would be managed can create complications after a death.
What about naming a trust or an estate?
Can a beneficiary be changed?
Often, a policyowner can change a revocable beneficiary by following the insurer's required procedure. An irrevocable beneficiary may have rights that restrict the owner's ability to make certain changes without that beneficiary's consent.
Changes still need to follow the insurer's required process and policy terms.
Consent may be required for certain changes, depending on the contract and applicable rules.
Ownership matters. The person who is insured is not necessarily the person who owns the policy. The policyowner generally controls beneficiary designations subject to the contract, existing beneficiary rights and applicable law.
When should beneficiary designations be reviewed?
- After marriage, divorce or remarriage.
- After the birth or adoption of a child.
- After the death of a named beneficiary.
- When family relationships or financial responsibilities change.
- After creating or materially changing an estate plan or trust.
- When reviewing life insurance coverage generally.
Life events do not necessarily update a policy automatically. Review the actual beneficiary designation on file with the insurer and obtain legal advice where state law, divorce orders, trusts or estate-planning issues may affect the result.
What happens when a beneficiary makes a claim?
After the insured's death, a beneficiary generally notifies the insurer and submits the required claim documentation. The insurer then reviews the information and determines the benefit payable under the contract.
Claims can require additional review depending on the facts, policy provisions and applicable law. The beneficiary should rely on the insurer's claim instructions rather than assuming payment is automatic or immediate.
Common misconceptions
Questions worth asking when reviewing beneficiaries
- Who is currently listed as my primary beneficiary?
- Have I named a contingent beneficiary?
- If I named multiple people, are the percentages recorded the way I intend?
- Are any beneficiaries minors?
- Have marriage, divorce, births, deaths or other family changes affected my intentions?
- Does a trust or estate plan need to be coordinated with the policy?
- Is any beneficiary designation irrevocable?
- Does the insurer have my current beneficiary designation properly recorded?
The bottom line
A life insurance policy can only carry out your intentions if its beneficiary designation reflects what you actually want and is valid under the policy and applicable rules.
Name beneficiaries deliberately, consider a backup designation, review the structure after major life changes, and involve qualified legal or tax professionals when trusts, minors, estates or other complex circumstances are involved.