Your life insurance beneficiary is the person or entity that receives your policy’s death benefit payout after you die. You can choose anyone as your beneficiary, as long as they’d be financially impacted by your death. Most people name their spouse or another family member with whom they share expenses.
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 companies will make sure there’s insurable interest when you list your beneficiary on your application, which means that your beneficiary would be at a financial loss if you died.
Common choices include:
You can also have multiple beneficiaries and specify the percentage of your death benefit each person receives. 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.
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.
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 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:
Alaska, Tennessee, and South Dakota have voluntary community property laws.  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 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.
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 conservator 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 executor files a claim.
This can significantly slow down distribution of the money because it’ll be subject to probate, when the courts determine who should get your assets.
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.
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.
Review your policy after major life events, including:
Death of a beneficiary
Birth of a child
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.
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.