Beneficiary Rules for a Life Insurance Policy

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Important things to know...
  • A beneficiary of a life insurance policy is an individual or entity who receives the death benefit with the insured dies
  • There are different designations of beneficiaries that need to be explained and understood by the insured
  • Beneficiaries are very important and need to be carefully handled because they receive the money right away without the money having to go through probate
  • Beneficiary designations should be periodically reviewed because people die, divorces occur and other changing life events that can make beneficiary designations obsolete

The beneficiary of a life insurance policy is the party or parties that are named by the policy owner as the recipient of the death benefit of the policy when the insured dies. There can be more than one beneficiary on a life insurance policy.

The policy proceeds pass to the named beneficiary directly without passing through probate or delay. Learn more about beneficiaries below and make sure to check out our free insurance comparison tool above! Just enter your zip and get the best rates for you today!

Types of Beneficiaries

  • Primary is a beneficiary who is first in line to receive the death proceeds of a life insurance policy. There can be more than one primary beneficiary, and the proceeds can be divided in any proportion that the policy owner decides upon.
  • Secondary only if the primary beneficiary is deceased.
  • Tertiary – beneficiaries receive the death proceeds of a life insurance policy only if the primary and secondary beneficiaries are deceased.

– Different Classes of Beneficiary Designation

Revocable Beneficiary: The owner of the life insurance policy has the right to change or modify the beneficiary at any time without the consent of the beneficiary who was previously named.

Irrevocable Beneficiary: This type of beneficiary designation does not allow the owner to change the beneficiary designation unless the currently named beneficiary agrees to allow it.

Per Stirpes and Per Capita Distributions

Another form of beneficiary designation is the Per Stirpes or per capita Designation.

  • Per Stirpes – Per Stirpes is a special delegation of assets to those individuals who are the most closely related to the insured person by a class of beneficiaries, or to those beneficiaries closest in the relationship. If that person is deceased, the estate will go to that person’s descendants.
  • Per Capita – Per Capita means by head count, or by the total number of individuals. All of the members of a designated group will receive equal shares.

The per stirpes designation is most often used in beneficiary designations when there are several beneficiaries that the insured wished to name, but doesn’t want to overlook anyone in a familial hierarchy. Using this method makes sure that no one will be omitted that is related.

Who Can Be Named As Beneficiaries of a Life Insurance Policy?


The naming of a beneficiary for your life insurance policies is an important step and should be undertaken with forethought and care. The following gave guidance as far as what is allowable and suggested:

  • Members of Your FamilyA family member is the most common form of beneficiary designation because people want to name those who are dependent upon the insured. This list would include a spouse or a domestic partner, children, both natural born and adopted, parents, brothers, and sisters.
  • A legal guardian – if a minor child is named as beneficiary, the legal guardian must be named, as the life insurance company cannot make a payment of the proceeds of the life insurance directly to a minor child.
  • A Trust – A trust is a legal entity used for estate planning purposes and for the purpose of receiving life insurance proceeds is various situations. For example, the life insurance death proceeds could be paid to an irrevocable life insurance trust or a revocable inter vivos trust for planning purposes when there are minor children.
  • A Charity – A charity can be named as the beneficiary of a life insurance. Such institutions as a church, a college, a school, or some other qualifying institution can be named as beneficiary.
  • The Estate of the Deceased – The estate of the insured can be named as a beneficiary of a life insurance policy. If neo beneficiary is named, or one that is named has died, then the estate will automatically be the beneficiary.

Care in Making and Maintaining Beneficiary Designations

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It is important that the owner of a life insurance policy take care of the maintenance of beneficiaries. Once a designation is made when a policy is first obtained, there is a tendency to let the moment slip into the background and become forgotten.

The numbers of people who forget to change beneficiaries when life changes occur are much more than most people might think. Situations such as the death of a beneficiary, a divorce with the divorced spouse still as the beneficiary, or simply forgetting to change a beneficiary if someone slips out of favor are quite common occurrences.

A periodic review of a person’s life insurance program is a procedure that can help to keep the beneficiary designation situation up-to-date. Many insurance professionals recommend a once per year check, either by phone or in person, and this is one of the topics that can be brought up in such sessions.

Only the owner of the insurance policy can name the beneficiary or change a beneficiary. In most situations, the owner and the insured is the same person. Where a spouse is the named beneficiary, there is no problem with ambiguity, but if multiple beneficiaries are listed, advice should probably be sought regarding proper designations.

Things to be Mindful of When Naming Beneficiaries For Life Insurance Policies

There a few items which can be red flags when it comes to naming a beneficiary on a life insurance policy:

  • Don’t name a minor child, a special needs person, or an incompetent person as a direct beneficiary of a life insurance program. Usually, a life insurance company will not knowingly pay the proceeds in such a case, but it might if it didn’t have all the facts.
  • For a special needs person, an attorney should be consulted to set up a special needs trust. In some states, a gift or a receipt of life insurance proceeds can invalidate government assistance, unless other measures are put into place.
  • Don’t name your estate as beneficiary. It just confuses things, and it could cause your life insurance proceeds to be taxed in your estate.
  • Name a contingent beneficiary, just in case the primary beneficiary dies and you forget about it.

In Conclusion

Insureds should take great care in naming the beneficiaries of their life insurance policies. The very fact that the death proceeds go directly to the beneficiary without any delay magnifies the importance of correctly identifying who is to receive the proceeds.

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