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.

Headshot of Policygenius editor Nupur Gambhir


Nupur Gambhir

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

Nupur 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 December 6, 2021 | 6 min read

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Life insurance is an important financial tool that protects your loved ones if you die unexpectedly. As long as you can prove evidence of insurability, you can name anyone who could be financially impacted by your death as your beneficiary. But if you don’t take precautions with your policy and designate the right beneficiary, they might not get the death benefit you spent years paying for.

So that the people you’re trying to protect are the ones who actually get the life insurance payout, you should avoid making the biggest life insurance mistake — naming the wrong life insurance beneficiary.

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 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 and testament, 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

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 the majority” to legally receive it. The age of the 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 be 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? You should evaluate who their primary caretaker would be after your death and designate them as the beneficiary — and also set up a will and testament to legally spell out instructions for care for your child. If some of the death benefit is meant to cover college tuition, you can list a 529 plan as one of the beneficiaries on your policy. (You can also allocate what percent of the death benefit each beneficiary gets to be more specific).

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Naming your pet as your beneficiary

You love your furry friends and want them to be happy and healthy. But that doesn’t mean that you should name your pet as your life insurance beneficiary. For starters, pets don’t have bank accounts and can’t manage money, so the life insurance company wouldn’t have anywhere to send the death benefit if you listed your four-legged friend as your policy’s beneficiary.

But just because your pets can’t accept the life insurance payout doesn’t mean you can’t use it to protect them after you’re gone. The best way to leave money behind for your pet’s needs, such as food and vet bills, is to list their designated caretaker as one of the beneficiaries of your life insurance policy and leave behind detailed instructions for your pet’s care. You can also 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.

Not naming anyone as your beneficiary

The best way to ensure no one gets the life insurance death benefit: having no beneficiaries to get the payout.

Even if you were diligent about listing a primary and contingent beneficiary or multiple beneficiaries when you bought your policy, if they all pass away and are therefore unable to accept the life insurance death benefit, 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 and testament.

To ensure that you have viable life insurance beneficiaries, you should always keep your policy up to date and adjust it 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.

And you should always have contingent beneficiaries listed in case your primary beneficiary (or beneficiaries) die. 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.

What happens if you don’t name a beneficiary at all? If you don’t have beneficiaries listed in your policy intentionally — maybe because no one is depending on you financially — then you probably don’t need a life insurance policy in the first place.

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.