Your life insurance beneficiary is the person or people who will receive the death benefit when you pass away. You'll normally choose at least one beneficiary when you apply, and you can usually name multiple primary and contingent beneficiaries. Most policies also allow you to change beneficiaries later without replacing your policy.
Your life insurance beneficiary is the person or people who will receive the death benefit when you pass away. You'll normally choose at least one beneficiary when you apply, and you can usually name multiple primary and contingent beneficiaries. Most policies also allow you to change beneficiaries later without replacing your policy.
Choosing a beneficiary sounds like one of the simplest parts of buying life insurance.
Sometimes it is.
But there are a few decisions worth thinking through before you complete your application.
Who should receive the money?
What happens if that person passes away before you?
Can you divide the money among several people?
Will your beneficiary know that you named them?
And perhaps most importantly, will somebody actually know whom to contact when the time comes?
Let's walk through it.
In Short
- You'll generally need to have a beneficiary in mind when you apply for life insurance.
- You can usually name more than one primary beneficiary.
- You can normally choose one or more contingent beneficiaries as backups.
- You can generally divide the death benefit among beneficiaries using percentages.
- Beneficiaries can usually be changed later without purchasing a new policy.
- Your beneficiary designation is generally private. You decide whether you want to tell the person you've named.
- We strongly recommend also choosing several trusted emergency contacts who know how to reach your agent if you pass away.
What Is a Life Insurance Beneficiary?
A beneficiary is the person or entity designated to receive the proceeds from your life insurance policy after your death.
For many people, the choice is obvious.
It might be:
- A spouse
- A child
- An adult grandchild
- A sibling
- Another relative
- Another person who has an appropriate relationship or financial interest
Depending on the policy and circumstances, other beneficiary arrangements may also be possible.
Some insurance companies have more restrictive beneficiary guidelines than others, so this is another area where the exact rules can depend on the company.
For most families, though, naming a spouse, adult child or another close relative is very straightforward.
Do I Have to Choose a Beneficiary When I Buy Life Insurance?
You should have a beneficiary in mind when you apply.
After all, that's the reason the policy exists.
You're purchasing life insurance so that when you pass away, money will be available for the people you've chosen to protect.
We'll ask you who you want to receive that money as part of completing the application.
Can I Have More Than One Beneficiary?
Yes.
You generally don't have to leave the entire death benefit to one person.
You might decide that you want your three children to share it equally.
Or perhaps you want your spouse to receive most of the benefit while another family member receives a smaller portion.
Many insurance companies allow you to specify exactly what percentage each primary beneficiary should receive.
For example, you could designate:
- Spouse: 50%
- Child 1: 25%
- Child 2: 25%
Or:
- Child 1: 33.33%
- Child 2: 33.33%
- Child 3: 33.34%
The percentages generally need to total 100%.
That gives you considerable control over where the money goes.
What Is a Contingent Beneficiary?
A contingent beneficiary is essentially your backup beneficiary.
Suppose you name your spouse as your only primary beneficiary.
You also name your two adult children as contingent beneficiaries.
If you pass away while your spouse is living, your spouse receives the death benefit.
But what happens if your spouse passes away before you?
That's where your contingent beneficiaries become important.
If there are no surviving primary beneficiaries when the benefit becomes payable, the proceeds can pass to the contingent beneficiaries according to your beneficiary designation and the terms of the policy.
This is why we generally encourage people to name contingent beneficiaries instead of stopping with a single primary beneficiary.
What Happens If One of My Primary Beneficiaries Dies Before Me?
This is an important question, especially when you have several beneficiaries.
The answer can depend on how the beneficiary designation is written and the policy's provisions.
You shouldn't simply assume that a deceased beneficiary's share will automatically go where you would have wanted it to go.
If a beneficiary dies before you, that's a good reason to review your policy and update the beneficiary designation.
It's usually simple paperwork.
That's also one reason we encourage our clients to stay in touch with us over the years.
Marriage, divorce, births, deaths and other family changes can all be good reasons to review your beneficiaries.
Can I Change My Beneficiary Later?
Usually, yes.
For most policies with a revocable beneficiary designation, changing beneficiaries does not require canceling your life insurance and buying another policy.
You simply complete the insurance company's beneficiary change paperwork.
You might change beneficiaries because:
- You got married.
- A beneficiary passed away.
- Your children became adults.
- Your family situation changed.
- You simply changed your mind.
Your policy can continue exactly as it was.
You're just changing who receives the money.
There are exceptions, particularly if you've made an irrevocable beneficiary designation or certain legal arrangements apply, so ask before assuming a change can always be made unilaterally.
Does My Beneficiary Know I've Named Them?
Naming someone as your beneficiary does not ordinarily mean the insurance company is going to call that person and announce it.
Your policy information is private.
It's your choice whether you tell someone you've named them as a beneficiary.
Some people discuss it openly with their family.
Others prefer to keep the exact beneficiary arrangement private.
Either choice is yours.
There is, however, something we strongly recommend telling a few people.
Your Emergency Contacts May Be Just as Important
This is something we spend time discussing with our clients because a life insurance policy only accomplishes its purpose if the right people know what to do when it's needed.
When we help you establish a policy, we strongly encourage you to choose two or three trusted emergency contacts.
These can be your beneficiaries, but they don't have to be.
We want those people to have your agent's contact information saved somewhere they can find it.
They need to know something very simple:
"If something happens to you, call us."
They don't need to know who your beneficiaries are.
They don't need to know your coverage amount.
They don't need access to your private policy information simply because you've listed them as emergency contacts.
They just need to know how to reach us.
When you pass away, we can help the appropriate people understand what needs to happen next and guide them through the claims process.
That's part of what we mean when we say we want to be your agent for life.
Our job isn't finished when your policy is issued.
We want your family to know where to turn when they eventually need the policy you've spent years paying for.
Can My Beneficiary Be a Minor Child?
This requires some additional planning.
You may absolutely want your life insurance money to benefit your minor children.
The complication is that a minor generally cannot simply receive and control a large life insurance payout the same way an adult can.
Depending on the circumstances and state law, a guardian, custodian, trust or another arrangement may be needed to manage the money.
If you have young children and substantial life insurance, this is something worth discussing with an appropriate estate-planning professional.
The important distinction is between:
"I want this money to protect my children" and "I should simply name my young child directly without considering how the money would be managed."
Those aren't necessarily the same thing.
This becomes especially important with larger term policies intended to support children for many years.
If you're weighing which type of coverage fits, Should I Pick Whole Life or Term?
Does My Beneficiary Pay Income Tax on Life Insurance?
Generally, life insurance proceeds received by a beneficiary because of the insured person's death are not included in the beneficiary's gross income for federal income-tax purposes.
There can be exceptions and special circumstances, particularly involving interest, business arrangements, transferred policies and certain estate situations.
For an ordinary family receiving a life insurance death benefit, however, the general federal rule is that the death benefit itself is not taxable income to the beneficiary.
For individual tax or estate-planning questions, you should speak with a qualified tax or legal professional.
What Happens If I Don't Have a Living Beneficiary?
This is another reason contingent beneficiaries are so important.
If you die without a surviving beneficiary, what happens to the proceeds can depend on your policy and applicable law. In some circumstances, the proceeds may ultimately become payable to your estate.
That can create complications you may have been trying to avoid by purchasing life insurance in the first place.
A much simpler approach is to keep your beneficiary information current.
Have primary beneficiaries.
Have contingent beneficiaries.
And review them whenever something important changes in your family.
How Often Should I Review My Beneficiaries?
You don't need to think about this every month.
But it's worth reviewing after major life changes such as:
- Marriage
- Divorce
- Birth or adoption of a child
- Death of a beneficiary
- Children reaching adulthood
- Major changes in family relationships
- Significant estate-planning changes
Even if nothing major happens, occasionally looking at your beneficiary designations is a good habit.
A policy you bought 15 years ago may still be exactly the policy you want.
That doesn't necessarily mean the beneficiaries you chose 15 years ago are still the people you would choose today.
The Bottom Line
Choosing a beneficiary is really about answering one question:
Who do you want your life insurance to protect when you're gone?
You can usually name one person or several people.
You can normally divide the benefit among multiple primary beneficiaries.
You can name contingent beneficiaries in case your primary beneficiaries are no longer living.
And in most cases, you can change those choices later without canceling your policy or starting over.
Just as importantly, make sure someone knows the policy exists and knows whom to call.
That's why we encourage our clients to choose two or three trusted emergency contacts and make sure they save their agent's information.
You don't have to tell those people your private beneficiary choices.
You don't have to tell them how much insurance you own.
They simply need to know:
"If something happens to me, call my life insurance agent."
We'll take it from there.
You Might Also Be Wondering...
How much life insurance do I need?
Should I pick whole life or term?
Can I get life insurance if I have health problems?
Why do they ask medical questions if there's no exam?
How do life insurance claims work?
Can my life insurance rates go up?
Have more questions?
A few common ones that come up alongside this article.
