When a person dies and is insured who receives the life insurance benefits?

A beneficiary is the person or entity you name in a life insurance policy to receive the death benefit. You can name:

• One person
• Two or more people
• The trustee of a trust you’ve set up
• A charity
• Your estate

If you don’t name a beneficiary, the death benefit will be paid to your estate.

Two “levels” of beneficiaries

Your life insurance policy should have both “primary” and “contingent” beneficiaries. The primary beneficiary gets the death benefits if he or she can be found after your death. Contingent beneficiaries get the death benefits if the primary beneficiary can’t be found. If no primary or contingent beneficiaries can be found, the death benefit will be paid to your estate.

As part of naming beneficiaries, you should identify them as clearly as possible and include their social security numbers. This will make it easier for the life insurance company to find them, and it will make it less likely that disputes will arise regarding the death benefits. For example, if you write "wife [or husband] of the insured" without using a specific name, an ex-spouse could claim the death benefit. On the other hand, if you have named specific children, any later-born or adopted children will not receive the death benefit—unless you change the beneficiary designation to include them.

Besides naming beneficiaries, you should specify how the benefits are to be handled if one or more beneficiaries can’t be found. For example, suppose you have two children and you name each one to receive half of the death benefit. If one of the children dies before you do, do you want the other child to get the entire death benefit, or the deceased child’s heirs to get his or her share?

If the death benefit goes to your estate, probate proceedings could delay distributing the money, and the cost of probate could diminish the amount available to your heirs.

Choosing beneficiaries, and keeping those choices up-to-date, is an important part of owning life insurance. The birth or adoption of a child, marriage or divorce can affect your initial choice. Review your beneficiary designation as new situations arise in order to make sure your choice is still appropriate.

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

Americans buy life insurance for various reasons. Maybe it’s to provide an income for a spouse, pay off a mortgage or fund future college expenses. Or it could be to pay for a funeral and final expenses.
No matter your reason for buying life insurance, it’s important to name a life insurance beneficiary.

What Is a Life Insurance Beneficiary?

A life insurance beneficiary is a person or entity you select to receive the death benefit from your life insurance policy when you pass away.

The beneficiary is paid the death benefit because your life insurance policy is a contract between you and the life insurance company. That means the face amount of the policy goes to your beneficiary regardless of what your will, probate courts or family say.

You can choose more than one beneficiary, and you can choose how much of the death benefit goes to each person.

Life insurance policies can also be used to keep businesses, especially family businesses, afloat. In this case, a company could be named as the beneficiary because the so-called “key man” or rainmaker is no longer there.

The life insurance amount you can afford, and the nature of the policy, could affect who you’re likely to name as the beneficiary. For example, consider these types of life insurance.

• A term life insurance policy with a time frame of 30 years might suffice for seeing your children through college or maintaining a business.
• A small burial insurance policy would pay for your funeral.
• A universal life insurance policy may be an effective way for those with assets to pass them on to their heirs.

Whatever the need, it’s vital to choose the best beneficiary.

Primary vs. contingent beneficiary

A primary beneficiary receives the death benefit when the policyholder dies, but what happens if the primary beneficiary is dead or somehow can’t collect the death benefit? That’s when you need a contingent beneficiary, sometimes called the secondary beneficiary.

You can have one or more primary beneficiaries and one or more contingent beneficiaries. Here are the differences between primary and contingent beneficiaries.

• Primary beneficiary. Receives the death benefit when the policyholder dies.
• Contingent beneficiary. Receives the death benefit only if the primary beneficiary is unable to receive it, such as if the person already died or doesn’t want to handle the death benefit.

It’s wise to name at least one contingent beneficiary (in addition to a primary beneficiary) just in case. You could name family members, friends, charitable organizations, children or the guardians of your children if you were to die.

The policy’s death benefit goes to the policyholder’s estate if both the primary and contingent beneficiaries die before the policyholder.

Who Can be a Life Insurance Beneficiary?

You can name anyone as a life insurance policy beneficiary. Charities, trusts and estates can also be named as beneficiaries.

Keep in mind that some state laws may require you to name your spouse as your primary beneficiary, getting at least 50% of the benefit. In some states, you may be able to name someone other than your spouse as a beneficiary if you have documented permission from your spouse to do so.

How Do I Choose a Life Insurance Beneficiary?

Think of naming a life insurance beneficiary as a way to provide funds for who or what you want: your spouse, a favorite charity, a pet, your own funeral.

In most instances, policyholders focus on the ones who’ll most need the payment if they die. That is the person or persons most reliant on your income or savings.

Designating a beneficiary

There are two options when designating a beneficiary.

• Revocable. In this case, you can change who you want as beneficiary at any time during the life of your policy.
• Irrevocable. An irrevocable beneficiary can’t be removed from the policy or have their share of the death benefit changed without their consent. An irrevocable beneficiary must also be notified if you cancel the policy.

Deciding how the death benefit will be paid

There are also options when choosing how the death benefit is paid to beneficiaries.

• Per capita (by “head”). In this case, the amount is split equally between all beneficiaries, often the children.
• Per stirpes (by “branches”). This means that if a child predeceases the policyholder, his or her children—the branches—receive what would otherwise be shared among the living children. Per stirpes is a valuable tool for protecting grandchildren, particularly if they’ve lost a parent.

Setting up a trust

When it comes to protecting grandchildren, or even that pair of beagles who were your best friends during your later years, nothing works as well as setting up a trust for all, or at least some, of the money in your policy. With a trust, the life insurance proceeds automatically go into the trust and not the estate.

But if you decide to take this route, it’s critical to find good trustees. You might want to ensure that a young beneficiary doesn’t squander his inheritance on a Lamborghini and forget about college. You may also want to guarantee that a favorite charity receives the money needed to help end world hunger or just prevent the dogs from being taken to the pound.

A trust is a way to accomplish this. In a sense, it keeps your hand on the tiller of your financial ship even after you’re gone. An attorney can help you make a trust as part of an estate plan.

Think of it as one of the notable times in your life when you—and only you—get to decide what is the right choice. After all, this is a personal decision and you can do as you please.

Life insurance is a legal contract that can seldom be challenged, except under very special circumstances, and is even less likely to be overturned in court than a will. You may offend someone—or several people—with your choice of beneficiary, but what can they do about it? The truth is, unless you tell them ahead of time, they probably won’t find out they’re not your life insurance beneficiaries until you’re dead.

When to Update, Change, Add or Remove Beneficiaries

It’s a good idea to review your life insurance beneficiaries at least once a year to make sure you’re still comfortable with who you have listed. Divorce, marriage or the death of a loved one are all instances that may cause you to reconsider your beneficiaries.

While a life insurance policy is a contract, it’s important to remember that it’s not set in stone. It’s a living document—at least while the policyholder is alive—and its beneficiaries can usually be changed at any time with either a request form or online.

Your likes and dislikes can lead to change. For example, one child may step up to help during an illness or injury while another sits on the bench. Divorce and remarriage can also lead to change, particularly if there are new children to consider.

If you and your spouse are ending your marriage, it’s prudent to know how life insurance works during a divorce. A settlement might include a stipulation that one or both spouses maintain life insurance, especially if they’re going to owe alimony or child support.

Since your life can constantly change, and people can come and go, insurers recommend naming contingent beneficiaries. These are people or entities like charities that would receive the money if the primary beneficiary has died. This is something that should always be considered, especially if your spouse is a primary beneficiary and you are growing old together.

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Life Insurance Beneficiary FAQ

Do I need a life insurance beneficiary?

It’s essential to have a beneficiary named on your life insurance policy. Without one, it’s unclear who or what entity gets the money, which can delay the death benefit payout, sometimes for years.

Naming a beneficiary ensures that your death benefit can be paid quickly and that your wishes can be carried out.

What happens if I don't name a beneficiary?

Not naming a life insurance beneficiary could cause issues for your loved ones after you die. If you don’t name a beneficiary, the policy’s death benefit becomes part of your estate. The will governs the estate and how the executor doles out the money. If you don’t have a will, the death benefit goes to a probate court.

Can I change my beneficiary?

You can usually change your beneficiaries at any time as long as you still own your policy and it is still in force.

In some cases, you may have to get the current beneficiary’s consent before naming a new beneficiary. For instance, you may need consent if the terms of your divorce dictate certain stipulations or if you have what’s called an “irrevocable designation.”

Can I name a child as my life insurance beneficiary?

If you name a minor child as a beneficiary, they won’t be able to receive the life insurance payout directly. Instead, the money could be held up while a guardian is appointed to administer the funds.

You could make a trust the life insurance beneficiary. The trust executor can then make the life insurance claim and use the money according to your wishes.

Is it wise to name my disabled or special-needs child as a beneficiary?

Naming a beneficiary who is receiving government assistance for a disability or other qualifying condition might not be a smart move. That’s because the death benefit they receive may make them ineligible for state and federal benefits, or the amount of assistance they get could be significantly reduced.

But you can still provide for someone receiving federal assistance without jeopardizing their financial support. One way to do this is by establishing a special needs trust and naming the trust as your beneficiary. That way your assets or life insurance payout can still help support the person with special needs without disqualifying them from state and federal financial support.

You might want to consider consulting a lawyer who specializes in estate planning to learn the best way to create a special needs trust.

Can a friend be a life insurance beneficiary?

You can name a friend as your beneficiary when you buy the policy, although the life insurance company might ask what “insurable interest” your friend has in you. In other words: How would they suffer financially if you passed away?

Once your policy is in place though, you can change the beneficiary to anyone.

Can I name my dog as my life insurance beneficiary?

You can’t name a pet as a life insurance beneficiary because they’re considered property. However, you could make a pet trust to receive the life insurance money and maintain care of the pet.

Are life insurance benefits taxed?

While the rest of what you leave can be subject to state and federal taxes, the payout from a life insurance policy is tax-free. Only interest collected on the money afterward is subject to taxation.

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