Choosing a Life Insurance Beneficiary

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A life insurance policy provides financial support to those who survive you after your death. A life insurance beneficiary is the person who receives the death benefit payout from your life insurance policy when you die. This payout can be used for costs associated with your death (like funeral arrangements and paying off hospital bills) so that your family and friends aren’t burdened with those. But it can also be used by your beneficiary to pay off mortgages, help with childcare, purchase a new house, etc.

The purpose of leaving this money to someone is twofold. First, it is to ensure that your debts won’t drag them down. Second, it is to give them something to live on and make their life easier. Basically, the purpose of life insurance is to take care of your loved ones when you die.

What is a life insurance beneficiary?

There are two types of life insurance beneficiaries: a primary beneficiary and a contingent beneficiary – and they can be either revocable or irrevocable beneficiaries.

Primary beneficiary versus Contingent beneficiary

A primary life insurance beneficiary is the person who will receive any death benefits when you die. He or she is your first choice. You can have multiple primary beneficiaries, where each receives a percentage of your death benefits.

A contingent beneficiary receives your death benefits should the primary beneficiary die before funds are disbursed. The contingent beneficiary will also receive the payout in the case that the primary beneficiary is unable to be found. In other words, a contingent beneficiary is the next in line to receive any money.

Revocable beneficiary versus Irrevocable beneficiary

A revocable beneficiary is someone who is designated to receive death benefits when you die, but since they are a revocable beneficiary you can change your mind about them being a beneficiary at any time and for any reason. When you make the change, you don’t need his or her signature — meaning the change can be done without the person ever even knowing.

An irrevocable beneficiary also receives death benefits when you die, but the difference is that if you change your mind about them being a beneficiary both you and the irrevocable beneficiary must sign off on it. If both parties don’t sign the necessary documents, that person remains a beneficiary on your life insurance policy.

What to consider when choosing your beneficiary

The first thing to consider when naming your beneficiary is the person’s age. If he or she is a minor, there are a few extra steps that must be made to comply with life insurance beneficiary rules. In most cases a guardian needs to be named to manage the money until the minor is of age to receive it. Many insurance companies mandate that you name a guardian when assigning beneficiaries. If so, you must decide who you trust enough to manage your children’s money.

If the beneficiary is legally disabled, you will want to consider creating a special trust. This way the beneficiary will be able to receive your money without losing any government assistance.

If you live in a state that is a community property state, you will need your spouse to sign a form waiving their rights to your death benefits. In a community property state, both spouses equally own any income made during the duration of the marriage as well as any property or belongings that may have been purchased with that income. If income made during the marriage is used to pay the premiums for your life insurance policy, then that policy – and any money paid out from it – will be considered community property. This means that your spouse will be entitled to receive at least a portion of the payout. The following nine states are community property states:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Lastly, if you’re remarried, and you have children from a previous marriage, how will you split the benefits? Do you want your new husband or wife to get more than your children?

How to name a beneficiary on your life insurance policy

After you’ve purchased your life insurance policy and determined who you want to be your life insurance policy beneficiary, you will need to identify them on a life insurance beneficiary designation form. A life insurance beneficiary designation form is a legal document that is used by your life insurance provider to determine who receives your death benefits when you die. It’s a powerful document and can override any last wishes you’ve made in your will. This is why it is so important to take your time determining who should be a beneficiary and how much each person should receive.

When filling out your life insurance beneficiary designation form, you will need the following information about the person you’re naming as your beneficiary:

  • Full legal name (first, middle, and last name)
  • Full address (street address, city, state, zip code, as well as country)
  • Phone number (include both cell and landline if possible)
  • Social security number
  • Date of birth

Can you choose more than one life insurance beneficiary?

Yes, you can. In fact, it’s quite easy and is done while filling out the life insurance beneficiary designation form. The only ‘difficult’ part is deciding how much of your policy each person is to receive.

You can choose between a specific percentage, per stirpes and per capita.

  • Specific percentage: With this type of payout, each of your named beneficiaries receives a certain percentage of your life insurance death benefits. Should you have two children, for example, you could designate that one would receive 30% and the other 70% of your benefits.
  • Per stirpes: This payout method is useful should a named beneficiary die before you. Instead of their payout going to the other beneficiary, it is divided amongst his or her remaining family. For example, if you have two grown children each with his or her own family, and one of them dies, their remaining children would receive the deceased’s portion of your death benefits.
  • Per capita: With per capita, each person who is eligible to receive your death benefits is given a percentage equal to everyone else’s.

Lastly, you can also determine how much money your beneficiaries are given at any one time. You can choose for them to receive everything all at once, or you can choose for them to receive their money in fixed monthly payments.

Frequently asked questions

Can you change your life insurance beneficiary?

Yes, as long as you named that beneficiary as a revocable beneficiary. If not, and he or she is named as an irrevocable beneficiary, you will need his or her signature to make any changes.

What happens if you do not choose a beneficiary?

If you haven’t named a beneficiary by the time you die, or if there are no surviving beneficiaries, all of your money goes to your estate. What happens to your estate when you die depends on where you live. Most of the time, your money is first used to pay off your debts. After that it is subject to any fees and taxes before a probate court distributes the remaining amount to your heirs.

What information do you need to add a beneficiary?

Generally, you need their full legal name, their address and contact information, as well as their social security number and date of birth. All of this information is needed to ensure your money is distributed to the right person.

Written by
Lauren Ward
Insurance Contributor
Lauren Ward has nearly 10 years of experience in writing for insurance domains such as Bankrate, The Simple Dollar, and She covers auto, homeowners, and life insurance, as well other topics in the personal finance industry.