Who you should never name as your life insurance beneficiary

Designating the wrong beneficiary on your life insurance policy can mean the people your policy is meant to protect might never get the necessary financial protection.

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Nupur GambhirNupur GambhirSenior Editor & Licensed Life Insurance ExpertNupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

Updated|6 min read

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The biggest life insurance mistake you can make is naming the wrong life insurance beneficiary.

You can name anyone who could be financially impacted by your death as your life insurance beneficiary (as long as you can prove evidence of insurability). But in order to ensure that the people (or animals) you’re trying to protect are the ones who actually get the life insurance payout, naming the right beneficiary is essential.

Key takeaways

  • The life insurance death benefit cannot be accessed by creditors but your estate and assets can be.

  • If you are not a legal adult you cannot receive the life insurance death benefit until you turn 18 (or 19 in some states).

  • You should keep your life insurance policy up to date and adjust your beneficiaries with every big life event.

Naming your estate as your beneficiary

You should not name your estate as your beneficiary.

Life insurance can be an important tool when you’re estate planning — and it may be tempting to list your estate as your life insurance beneficiary. You’ve likely designated how it should be dispersed to your dependents in your will and testament, after all. But listing your estate as your life insurance beneficiary can have severe ramifications for your loved ones, and a death benefit payout to your estate can mean they don’t get the entire death benefit — or any of it all.

This is because of how your estate and assets are handled after your death. Instead of being immediately dispersed as you designated in your will, they’ll first go through a process called probate, where a judge determines what debts you owe. If you have any outstanding debts, then creditors will first be able to collect repayment from your estate. Once those debts are settled, the rest of your estate will be dispersed as per your wishes.

The life insurance death benefit, on the other hand, isn’t subject to a probate court and can’t be paid out to anyone besides the beneficiaries you listed in your policy. This means creditors can’t collect your life insurance policy’s death benefit if they aren’t listed on your policy, regardless of the debts you owe.

By listing the people you’re trying to protect in your policy, you’re making sure that they’re the ones who will receive the death benefit. But if you list your estate as the beneficiary, there’s a chance they won’t.

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Naming your children as your beneficiary

You should not list your minor children as your beneficiary.

There’s a good chance you’re getting a life insurance policy to protect your kids. As your dependents, they’ll need financial support to replace the everyday expenses you cover — or plan to cover — for them. But even if your life insurance policy is meant to benefit them, you probably shouldn’t list them as your beneficiaries. Listing your children as your life insurance beneficiaries can make the death benefit payout complicated because they need to be “the age of majority” to legally receive it. The age of majority is when someone is considered an adult by law and is 18 in most states but 19 in Alabama and Nebraska.

If your life insurance beneficiary isn’t a legal adult, then they won’t get the death benefit until they’re of age. Instead, the death benefit would be given to a court-appointed guardian to hold onto until your child turns 18 (or 19). Usually, this court-appointed guardian would be the remaining parent, but if that’s not the case, then the payout won’t be dispersed until the court determines your child’s guardian.

This could take years due to the factors that go into settling upon the appropriate guardian, which include wishes you may have spelled out in your will, finances, living accommodations, and anything else that would impact the well being of your child.

A large lag between your death and when your children would actually get the payout could defeat the purpose of the policy altogether. This lack of financial security could impact your children’s ability to pay for housing and cover any health expenses.

So how can you make sure that your children are receiving the financial protection you’re paying those premiums for? Create a trust, and name a trustee who will manage the money from the death benefit on behalf of your children.

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Naming your pet as your beneficiary

You should not name your pet as your beneficiary.

Because your pet can’t partake in the necessary processes that are required to accept the death benefit — such as opening a bank account, signing legal documents, or filing a death benefit claim — you won’t be able to list them as the recipient of the life insurance death benefit.

The best way to leave money behind for your pet’s needs, such as food and vet bills, is to set up a pet trust that your policy pays into, which can establish exactly how the funds will be used and who will be responsible for your pet. (You’ll need to nominate a guardian to accept the funds and take care of your pet. This should obviously be someone you trust — but it’s also important that it’s someone willing to take on the job. Make sure to speak to your pet’s prospective guardian before listing them in your pet trust.)

Every state and the District of Columbia have laws in place regarding pet trusts. You can find details of how trusts work in your state through ASPCA, but most trusts terminate when your pet dies. If you have multiple pets listed under your pet trust, then the trust will terminate once the last remaining pet dies.

You should work with an attorney experienced in pet trust laws when setting up a trust for your pet to ensure that your furry friend is well taken care of.

Naming nobody as your contingent beneficiary

You should not fail to name a contingent beneficiary.

A contingent beneficiary is a back-up beneficiary. If your primary beneficiary is unable to accept the life insurance death benefit and you have no contingent beneficiary, then your policy would be paid out to your estate. At this point, it would go into probate, be collected by creditors for any outstanding debts, and then the remainder would become a part of your estate or dispersed amongst your heirs, according to your will.

To ensure that you have viable life insurance beneficiaries, you should always keep your policy up to date and adjust both the primary and contingent beneficiaries with every big life change, like a marriage, divorce, or death. Generally, changing your life insurance beneficiary can be a pretty seamless process and is done in your online portal, though some life insurance companies may ask that you mail in a change of beneficiary form verifying your adjustments.

If you have multiple people that depend on you financially, you can even discuss whether or not you should set up a per capita or per stirpes death benefit with your life insurance agent.

You pay your policy premiums to safeguard the financial security of your loved ones — and it’s important to have the right beneficiaries noted in your policy so that your life insurance coverage does what it’s meant to do.