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What Is a Beneficiary?

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Last editedAug 20212 min read

If you’ve taken out life insurance, it’s important to understand what is meant by the term ‘beneficiary.’ Find out everything you need to know with our simple guide to beneficiaries, primary beneficiaries, contingent beneficiaries, and more. First off, what is a beneficiary?

Beneficiary definition

In the simplest terms, a beneficiary is the person/entity named in a life insurance policy to be the recipient of the death benefit. There are relatively broad rules regarding who/what can be named as a beneficiary. For example, you can name:

  • One person

  • Two or more people

  • Your estate

  • A charitable organization

  • A trustee of a trust you’ve set up

If you don’t name a specific person/entity as a beneficiary, the death benefit will be paid to your estate by default. This can lead to an extended probate process, which may delay the disbursement of money to your heirs, so it’s important to name a beneficiary on your policy to ensure a smooth process.

Contingent beneficiary explained

Within life insurance, there are two types of beneficiaries: primary beneficiaries and contingent beneficiaries. What’s a primary beneficiary? Simple – the primary beneficiary receives the death benefits if they can be found after your death. So, what’s a contingent beneficiary? In the event that the primary beneficiary cannot be found, the contingent beneficiary will receive the death benefits. If neither the primary or contingent beneficiary can be found, the death benefits will be paid to your estate. That’s essentially everything you need to know about contingency beneficiaries – they’re simply back-up beneficiaries.

Tips for naming a beneficiary

If you’re putting together a life insurance plan, there are a couple of things that you should consider when naming a beneficiary.

Firstly, ensure that the beneficiary is identified as clearly as possible. You can’t simply give their names – you need to include their social security numbers, as well as other identifying information, to ensure that they’re as easy as possible for the life insurance company to locate.

Furthermore, you should be specific if you’re naming a relative as your beneficiary. For example, writing “the [wife/husband] of the insured” without including their name could give an ex-spouse the opportunity to claim the benefit. At the same time, if you took out a life insurance policy earlier in your life, named your children as beneficiaries, and then had more children, it’s important to amend the policy to ensure that later-born children are also named as beneficiaries. Otherwise, they won’t be able to receive the death benefit.

It’s also important to be as specific as you can regarding how the death benefits should be handled if the beneficiary, or multiple beneficiaries, are unable to be found. What if you name someone who subsequently dies as a beneficiary? Should their heirs receive the death benefit, or should the death benefit return to your estate? These are all important issues to consider when you draft your life insurance policy. Bottom line: it’s vital to review your beneficiary designations on a regular basis to ensure that your choices remain appropriate.

Revocable vs. irrevocable beneficiaries

Another concept that you may run up against when researching life insurance is revocable vs. irrevocable beneficiaries. It sounds complicated, but it’s super-simple. Revocable beneficiaries can be changed at any point during the lifetime of the policy owner, if necessary. Irrevocable beneficiaries are permanent. As such, irrevocable beneficiary is essentially a more ironclad form of designation, and once irrevocable beneficiaries are designated as such, they cannot be removed unless they agree to it.

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