Your life insurance beneficiary is the person or entity that receives your policy’s death benefit payout after you die. Most people name their spouse or another family member with whom they share expenses, but you can also name a trust, charity, or business.
In most cases, your beneficiary designation takes precedence over instructions in your will, helping ensure the death benefit goes to the people or organizations you intended. As you set up your life insurance policy, you’ll typically name both a primary beneficiary and a contingent beneficiary. This guide explains how beneficiary designations work, how claims are filed, and how life insurance companies pay benefits.
Who can you list as your life insurance beneficiary?
You can choose a person, legal entity, or organization to be your life insurance beneficiary, as long as there’s financial justification for your choice. Life insurance policies generally allow you to name a person, legal entity, or organization as your beneficiary, provided the designation complies with the insurer’s requirements and applicable state law.
The best life insurance beneficiary depends on your personal situation and what you want your life insurance policy to accomplish. For example, someone with young children may choose a trust to help manage the death benefit, while a business owner may name a business partner to help protect the company after their death.
Common choices include:
Your spouse
A trust
Family members
Business partners
Charitable organizations
Most life insurance policies also allow you to name multiple beneficiaries and assign each person or organization a percentage of the death benefit, as long as the total equals 100%. For example, you could leave 80% of the payout to your spouse, 10% to a business partner, and 10% to charity.
If you don’t specify how much each will receive, the payout will be split evenly among all your beneficiaries.
You can usually update your beneficiary designation later if your circumstances change, unless you’ve named an irrevocable beneficiary. Reviewing your life insurance policy after major life events can help ensure your beneficiary choices continue to reflect your wishes.
What is a contingent beneficiary?
A contingent beneficiary — also called a secondary beneficiary — is someone who can file a claim for the death benefit if the primary beneficiary is unable to receive the money. It’s best practice to list a contingent beneficiary in addition to your primary beneficiary.
If you don’t list a contingent beneficiary and your primary beneficiary has died or otherwise can’t claim the money, the death benefit gets paid out to your estate.
Naming a contingent beneficiary helps keep your life insurance policy up-to-date and can reduce the chance that the proceeds will become part of your estate and go through probate. For many people, naming both a primary beneficiary and a backup beneficiary is a simple way to help ensure their wishes are carried out.
Should you name your spouse as your beneficiary?
Many people list their spouse as their life insurance beneficiary, because they’re the one who would be the most impacted financially if the insured person died. Your spouse can use the death benefit to help pay the bills or cover future expenses, like the remaining balance of a mortgage or children’s college tuition.
But your spouse doesn’t automatically become your beneficiary — you still have to name them on your policy.
On the other hand, there are nine states with community property laws in which you need your spouse’s consent to name someone other than them as your beneficiary:
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
Alaska, Tennessee, and South Dakota have voluntary community property laws. [1] Community property laws requiring your spouse’s consent on named beneficiaries only apply if your policy becomes effective after you get married.
Should you name minor children as your beneficiary?
We don’t recommend naming your children as beneficiaries if they’re still minors because it can delay their access to the money. Since minors generally can’t legally file a claim for the death benefit, the money would go into a trust overseen by a court-appointed guardian until the child reaches the age of majority, which is 18 or 19 years old depending on your state.
It’s best to name your spouse or a trust as a beneficiary to ensure the money is spent according to your wishes.
→ Read more about who you shouldn’t name as a life insurance beneficiary
Should you name a trust as your beneficiary?
Setting up a trust and naming it as your beneficiary can be a good option in these scenarios.
You want to avoid estate taxes on your death benefit.
You want to ensure your payout benefits your minor children.
You want to protect a less conventional beneficiary, like a pet.
When you name a trust as your beneficiary, an appointed trustee receives your death benefit and disburses the money on your behalf. For example, if you name someone to inherit your pet or be the legal guardian of your child in your will, a trust lets you specify that the death benefit is used for their care.
An estate planning attorney can help you determine if you need a trust and ensure it’s set up correctly.
What happens to life insurance with no beneficiary?
If you don’t choose any primary beneficiaries or if they die before you, the insurance company will pay the life insurance proceeds to your estate, if the estate’s executor files a claim. From there, the money is distributed according to the deceased person’s will or, if there isn’t one, state law.
When a life insurance policy pays proceeds to an estate instead of a beneficiary, the funds may need to go through probate. Probate is the legal process of settling an estate, and it can delay how quickly loved ones receive the money. In some situations, estate creditors may also have access to assets that pass through the estate.
If you have a high net worth and your death benefit goes to your estate, your family may also have to pay an estate or inheritance tax.
Naming both a primary beneficiary and a contingent beneficiary, and reviewing your beneficiary designations regularly, can help reduce the likelihood of these complications.
→ Learn more about buying life insurance
Who can change the beneficiary on a life insurance policy?
The policyholder is the only one who’s able to change the beneficiary on their policy. Keeping your life insurance beneficiaries up-to-date is one of the best things you can do to protect your loved ones.
Updating the beneficiary on your life insurance policy is usually a straightforward process. Most insurance companies allow policyholders to submit a beneficiary change request through an online account, by mail, or with the help of a licensed representative. If your coverage is provided through an employer, you may also be able to make changes through your employee benefits portal.
It’s a good idea to review your life insurance beneficiary designation at least once a year and after major life events, such as marriage, divorce, the birth of a child, or the death of a beneficiary. You should also make sure your beneficiary’s contact information is accurate so the insurance company can reach them if needed.
After making any changes, save confirmation from the insurer with your policy records. Keeping copies of your updated beneficiary designation can make it easier for your loved ones to locate important information when they need it.
Review your policy after major life events, including:
Death of a beneficiary
Birth of a child
Divorce
Marriage
Updated estate plan
Revocable vs. irrevocable beneficiaries
When choosing a life insurance beneficiary, you have two options — to make them revocable or irrevocable.
If you have a revocable beneficiary, you can make changes to their status on your policy while you’re still alive. For example, you can remove them from the policy altogether or change the percentage of the death benefit they’ll receive.
If you have an irrevocable beneficiary, once you’ve named them as such on your policy, no one, including yourself, can make changes to the amount of money they’ll receive upon your death or even remove them from your policy.
→ Learn more about changing your life insurance beneficiary
How do life insurance beneficiaries receive the death benefit?
After the policyholder dies, the life insurance beneficiary or a family member typically notifies the insurance company and begins the claims process. If the beneficiary already knows about the life insurance policy, they shouldn’t wait for the insurer to reach out before filing a claim.
In most cases, the insurance company will ask the life insurance beneficiary to complete a claim form and provide a certified copy of the death certificate. Depending on the situation, the insurer may also request additional documentation to verify the claim or confirm the beneficiary’s identity.
Once all required documents have been received, the insurance company reviews the claim to confirm that the life insurance policy is active and that the beneficiary designation is valid.
Straightforward claims are often processed within a few weeks, although the timeline can vary depending on the insurer and whether additional information is needed.
If the insurance company has current contact information, it may also attempt to notify the life insurance beneficiary that a claim can be filed. Even so, beneficiaries should contact the insurer as soon as they know a policy exists to help avoid unnecessary delays.
After the claim is approved, the insurer pays the death benefit according to the beneficiary designation and the payout option selected under the policy. In general, life insurance death benefits paid to beneficiaries aren’t subject to federal income tax, although exceptions may apply depending on the circumstances. If you have questions about taxes or complex estate planning situations, consider speaking with a qualified tax or legal professional.
How is the death benefit paid to life insurance beneficiaries?
If you have multiple beneficiaries, you can choose to pay your beneficiaries per capita or per stirpes in the event one beneficiary dies.
Per capita means that the remaining beneficiaries receive an equal split. This is the default option that works for most people.
Per stirpes reserves a deceased beneficiary’s payout for their heirs. The option is best if you want your insurance proceeds to benefit your beneficiary’s family.
→ Calculate how much life insurance you need
Frequently asked questions
Can I name multiple life insurance beneficiaries?
Yes. Most insurance companies allow you to name more than one life insurance beneficiary on a policy. You can choose how the death benefit is divided by assigning each beneficiary a percentage of the proceeds, as long as the percentages total 100%. It’s important to note that the percentages need to be whole numbers. For example, if you’re looking to name three people as beneficiaries with equal portions, one person will have 34% while the remaining two will have 33%. This allows you to provide financial support for multiple people or organizations based on your wishes.
These percentages typically need to be whole numbers. For example, if you want to divide the benefit as evenly as possible among three beneficiaries, you could assign 34% to one person and 33% to each of the other two.
Does a life insurance beneficiary override a will?
In most cases, yes. The beneficiary designation on your life insurance policy generally takes precedence over instructions in your will. That’s why it’s important to review your beneficiary designations regularly and update them after major life events to ensure they reflect your current wishes.
What happens if my beneficiary dies before I do?
If your primary beneficiary dies before you and you’ve named a contingent beneficiary, the contingent beneficiary typically receives the death benefit. If you haven’t named a backup beneficiary, the proceeds may become part of your estate and could be subject to probate before they’re distributed.
Can I change my life insurance beneficiary?
In most cases, yes. If you’ve named a revocable beneficiary, you can usually update your beneficiary designation at any time by contacting your insurance company or submitting a beneficiary change request through your online account. If you’ve named an irrevocable beneficiary, you’ll generally need that person’s consent before making changes.
Can a minor be a life insurance beneficiary?
Yes, but it’s generally not recommended. Because minors generally can’t legally receive life insurance proceeds directly, the money may be held until a court appoints a guardian or until the child reaches the age of majority. Many people choose to name a trust instead so the funds can be managed according to their wishes.
How long does it take for a beneficiary to receive a life insurance payout?
The timeline varies by insurer, but many straightforward claims are paid within a few weeks after the insurance company receives all required documents, including a completed claim form and a certified death certificate. Claims involving disputes or missing information may take longer.
Can a trust be a life insurance beneficiary?
Yes. Naming a trust as your life insurance beneficiary can help you control how the death benefit is distributed. This may be especially helpful if you have minor children, a beneficiary with special needs, or more complex estate planning goals. An estate planning attorney can help determine whether naming a trust is right for your situation.
