Life Insurance - Choosing Beneficiaries


The party designated by the owner of the life insurance policy to receive the life insurance policy’s proceeds upon the insured’s death.

Primary Beneficiaries & Contingent Beneficiaries (Life Insurance)

Generally there are two basic types of life insurance beneficiaries.

  • Primary Beneficiary: 
    The primary beneficiary is the person (or persons) who will receive the proceeds of the life insurance policy when the insured person dies.
    Note: Although, the primary beneficiary will not receive any proceeds if he or she dies before the death of the named insured.

  • Contingent Beneficiary:
    A contingent beneficiary is also known as the secondary beneficiary. The contingent beneficiary will not receive any of the life insurance proceeds if the primary beneficiary is still alive when the insured person dies. The contingent beneficiary is only entitled to receive proceeds if the primary beneficiary dies before the named insured dies.

Keep in mind, it usually best to have both a primary beneficiary and a contingent beneficiary.

If you have multiple beneficiaries, you would also need to specify how the proceeds will be distributed.

 Your choices are:

  • Per Capita, under which if a beneficiary dies ahead of the insured the other beneficiaries will get an equal share of the proceeds, or,

  • Per Stirpes, under which the benefits are passed on to the beneficiary's descendants.

Note: If you have multiple beneficiaries, it is best to designate that proceeds will be distributed as a percentage rather than a dollar amount.

Revocable and Irrevocable Life Insurance Beneficiaries

There are also two classes of beneficiaries. One class is revocable and the other class is irrevocable beneficiaries.

  • Revocable beneficiaries: The owner of the life insurance policy has the right to change the beneficiary designation at any time without the consent of the previously named beneficiary.

  • Irrevocable beneficiaries: The owner of the life insurance policy cannot change the designation of the beneficiary without the consent of the original beneficiary.

Determining the proper beneficiary in your life insurance policy is a matter of the utmost importance.

Below are some of the choices of who you should consider as your beneficiaries:

  • Family
  • Legal Guardian
  • Estate
  • Trusts
  • Charity
  • Key Person Life Insurance

Some Common Mistakes To Avoid:

  • Naming a minor child:
    Naming children as life insurance beneficiaries sounds like a good idea but can backfire. Insurers won’t pay life insurance benefits directly to minors. If you haven’t created a trust or designated a guardian to manage the money, a court will have to appoint a guardian until the children turn 18 or 21, depending on the state. This can cause a delay in providing financial support to the children.1

    Instead, set up a trust to benefit the child, and name the trust as the life insurance beneficiary. Or designate a trusted adult as custodian to administer the benefit.1

  • Forgetting to update beneficiaries
    Be sure to review your life insurance beneficiaries every couple of years, especially if you marry, divorce or have a child.1

    If a beneficiary passes away, you’ll want to update your designations.1

    Failing to update your beneficiaries could cause big problems if you die, particularly if an ex-spouse is still listed on the life insurance policy and shouldn’t be. Stay ahead of the game and review your policy from time to time.1

  • Naming only a primary beneficiary
    Naming just one person as your beneficiary isn’t the best option, since that person could die before you do. Or, if you name only your spouse, you could both die at the same time, such as in an accident.1

    So consider naming a secondary and even a tertiary beneficiary. That way, if the primary beneficiary dies, the money goes to the secondary beneficiary. If that beneficiary has died, then the death benefit goes to the tertiary beneficiary.1

  • Not naming any beneficiaries
    On the other end of the spectrum is not designating anyone as a beneficiary — whether intentional or not. When there’s no living beneficiary, the proceeds typically go to your estate and are then subject to probate. This can leave your loved ones with a long wait to get the money. Also, when life insurance benefits go to an estate, they can then be claimed by creditors of the estate.1

  • Naming a person with special needs
    Setting up a lifelong dependent, such as a special needs child, as your life insurance beneficiary can cause big problems. The life insurance benefits can put that person at risk of losing government assistance such as Social Security, on which many adults with disabilities rely for income.1

    Instead, work with an attorney to set up a special needs trust and name the trust as beneficiary. The proceeds can then be used to supplement that person’s government benefits instead of eliminating them.1

This is just a basic overview and there is a lot more to know about beneficiaries. Before applying for your new life insurance policy with your independent life insurance agent, ask him/her for their assistance in helping you pick your beneficiaries.

Disclaimer: These are basic descriptions, be sure to read the life insurance policy you plan on purchasing for specifics before signing!

Related blog post regarding beneficiaries: 

Life Insurance - Can Anybody Be A Beneficiary?

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Note: Life Insurance information can be confusing to many people. As an "independent licensed agent" I can explain things to you in simple terms so you feel comfortable making a decision. Then I can help you choose a life insurance policy, from many choices of different insurance companies, that you feel fits your needs. Plus if you choose to work with me you will have personalized service by a local agent that can shop premium quotes for you. If you would like my assistance to discuss and/or start the process of getting you insured please call me at 941-404-5334. 

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