Understanding Beneficiaries
When you purchase life insurance, one of the most important decisions you make is choosing who will receive the policy's death benefit when you pass away. The people or entities you designate are called your beneficiaries.
Choosing beneficiaries may seem straightforward, but beneficiary designations can have significant financial consequences. Understanding how they work—and keeping them updated as your life changes—can help ensure your life insurance proceeds go to the people or organizations you intend to protect.
What Is a Life Insurance Beneficiary?
A beneficiary is the person or entity designated to receive the proceeds from a life insurance policy after the insured person dies.
For example, if you purchase a $500,000 life insurance policy and name your spouse as the beneficiary, your spouse would generally receive the applicable death benefit if you die while the policy is in force.
Beneficiaries can potentially include:
A spouse or partner
Children
Parents
Other family members
Friends
A trust
A business
Certain organizations or entities
The policy documents and applicable laws determine who can be designated and how proceeds are distributed.
Primary vs. Contingent Beneficiaries
Life insurance policies can generally have both primary beneficiaries and contingent beneficiaries.
Primary Beneficiary
The primary beneficiary is the person or entity designated to receive the death benefit when the insured dies.
You can generally name one primary beneficiary or divide the benefit among multiple primary beneficiaries.
For example, you might designate your spouse as the primary beneficiary.
Contingent Beneficiary
A contingent beneficiary is a backup beneficiary.
They generally receive the death benefit if the primary beneficiary dies before the insured person or is otherwise unable to receive the proceeds.
For example, a parent might name their spouse as the primary beneficiary and their children as contingent beneficiaries.
Having a contingent beneficiary can help provide a backup plan if circumstances change.
Can You Have More Than One Beneficiary?
Yes. You can generally name multiple beneficiaries and specify how you want the proceeds divided.
For example, you might designate two children to each receive 50% of the death benefit.
You could also designate different percentages among multiple beneficiaries depending on your wishes and the policy's provisions.
It's important to make the percentages add up to 100% and to review the designation carefully when completing the application or making changes.
What Does "Per Stirpes" Mean?
Some life insurance beneficiary forms may include distribution options such as per stirpes.
Generally, a per stirpes designation is intended to allow a deceased beneficiary's share to pass to that beneficiary's descendants rather than simply being redistributed among the remaining beneficiaries.
For example, if you name two children as beneficiaries and one child dies before you, a per stirpes arrangement may allow that child's share to pass to their children.
Beneficiary language can have important legal and financial consequences, so if you're considering a more complicated distribution arrangement, it may be appropriate to consult a qualified estate planning professional.
Should You Name Your Children as Beneficiaries?
Parents may want their children to receive life insurance proceeds, but naming minor children directly as beneficiaries can create complications.
Minors generally cannot directly manage large financial assets in the same way an adult beneficiary can.
Depending on the circumstances, the proceeds may require a court-appointed guardian, custodial arrangement, trust, or another legal structure.
For parents with minor children, a properly established trust or other estate planning arrangement may provide more control over how and when the money is used.
Because the appropriate structure depends on your circumstances and applicable law, consider consulting an estate planning attorney before naming minor children directly as beneficiaries of a substantial policy.
What Happens If Your Beneficiary Dies Before You?
If your primary beneficiary dies before you, the policy's remaining beneficiary designations become particularly important.
If you've named a contingent beneficiary, the contingent beneficiary may receive the death benefit according to the policy's terms.
If there is no surviving beneficiary, the proceeds may be paid according to the policy's default provisions or applicable law. In some situations, this could result in the proceeds becoming part of your estate.
This is one reason naming contingent beneficiaries can be an important part of your overall life insurance plan.
What If You Get Married or Divorced?
Major life events are a good reason to review your beneficiary designations.
Getting married may mean you want to add your new spouse as a beneficiary. Divorce may also change your wishes, but you shouldn't assume that a divorce automatically changes every beneficiary designation.
State laws and policy provisions can affect what happens after divorce.
After marriage, divorce, remarriage, or another major family change, review your policy and beneficiary designations to make sure they still reflect your wishes.
What If You Have More Children?
Families can change over time.
If you initially purchased life insurance after having one child and later have additional children, review your beneficiary designations.
For example, if you want all of your children to receive equal shares, you'll need to make sure your policy reflects that intention.
Regular reviews can help prevent an outdated beneficiary designation from producing an unintended result.
Can You Change Your Beneficiary?
In many cases, yes.
Many life insurance policies allow the policy owner to change beneficiaries after the policy is issued.
However, there is an important distinction between revocable and irrevocable beneficiaries.
A revocable beneficiary can generally be changed by the policy owner without the beneficiary's permission.
An irrevocable beneficiary generally has stronger rights, and changing or removing that beneficiary may require their consent.
Your policy documents should explain whether a beneficiary designation is revocable or irrevocable.
What Happens If You Forget to Update Your Beneficiaries?
An outdated beneficiary designation can potentially cause your life insurance proceeds to go somewhere you no longer intend.
For example, imagine you purchased a policy when you were single and named a parent as your beneficiary. Years later, you get married but never update the policy.
Depending on the policy and applicable law, the existing beneficiary designation may still control the distribution of the death benefit.
This is why beneficiary reviews are so important.
Should Your Beneficiary Know About Your Policy?
It's generally a good idea to make sure the people who may need to file a claim know that the policy exists.
You don't necessarily need to provide every detail, but beneficiaries should know:
That you have life insurance
The name of the insurance company
Where the policy documents are located
Who to contact if something happens
Any relevant policy or account information
A life insurance policy can't provide financial protection if your family doesn't know it exists or cannot locate it.
How Often Should You Review Your Beneficiaries?
There's no universal schedule, but reviewing your beneficiary designations periodically can help keep them aligned with your wishes.
Consider reviewing them after major life events such as:
Marriage
Divorce
Birth or adoption of a child
Death of a beneficiary
Remarriage
Major changes in your family
Changes in your estate plan
Significant changes in your financial situation
You may also want to review your beneficiaries as part of your broader financial planning process.
The Bottom Line
Your life insurance beneficiary designation determines who is generally intended to receive your policy's death benefit when you pass away.
Choosing primary and contingent beneficiaries, reviewing your designations after major life events, and making sure your family knows where your policy information is located can help reduce confusion and potential disputes.
For more complicated situations—such as minor children, trusts, blended families, business ownership, or estate planning—professional legal and financial guidance may be appropriate.
Life insurance is designed to protect the people you care about. Choosing the right beneficiaries helps make sure that protection reaches the people you intend to support.