Understanding Life Insurance Beneficiaries

September 24, 2024 | Tom Peterson

Life insurance is used for many purposes, from covering outstanding debts, providing financial protection for a young family in the event of the policyholder’s death, and leaving a financial legacy for loved ones. The type of life insurance policy you choose and the specific purpose it serves may vary, but the ultimate goal remains consistent: to ensure that the intended beneficiaries receive the intended benefits when the life insurance policy is utilized.

Let’s look deeper into the different types of beneficiaries that can be assigned and the idea behind each of them. We will also cover what kinds of things may trigger an update to the beneficiary information on file with your policy.

What is a Beneficiary?

A beneficiary is an individual or entity that you legally designate within your life insurance policy to receive the death benefit upon your passing. This person or entity will receive the specified funds, and is typically assigned when you purchase the policy.

Who Can Be Listed as a Life Insurance Beneficiary?

• Child/Children (minor children not recommended)
• Spouse/Life Partner
• Business Partner
• Charity
• Personal Estate

Types of Beneficiaries

Primary vs Contingent

• Primary: This is the first person (or persons) who is in line to receive the death benefit from a life insurance policy. It is possible to list multiple primary beneficiaries, but making note of designated percentage is important.
• Contingent: If a primary beneficiary(ies) passes away before you, or at the same time as you, most policies allow a “backup” beneficiary. This is known as a “secondary” or “contingent” beneficiary.

Revocable vs Irrevocable Beneficiary

• Revocable: This type of beneficiary can be updated by the policy owner at any time throughout the life of the policy.
• Irrevocable: This type of beneficiary cannot be changed without the approval of the currently listed beneficiary. This kind of situation gets tricky when a marriage is involved that may later end in divorce.

Per Stirpes vs Per Capita

• Per Stirpes: This means that if the assigned beneficiary precedes the insured in death, the beneficiary’s heirs will receive the death benefit that is paid out.
• Per Capita: This means that any surviving descendants of the same generation of listed beneficiary will be distributed the death benefit equally.

What If I Do Not Choose a Beneficiary?

Most commonly, a default beneficiary known as your “estate” will be assigned to a policy if there is not a specific beneficiary listed. This means that the plan or established will or trust determines the distribution of the death benefit.

What Kinds of Things Can Trigger a Revisit to Designated Beneficiaries?

• Name change
• Birth of a new child
• Divorce
• Policy ownership change  
• Death

It’s important to regularly review and update your beneficiary designation to ensure it aligns with your current wishes and circumstances. 

Assigning a loved one’s assets upon passing can be stressful. Having a will and the designated assignment of your estate listed out clearly may bring ease to an already difficult time.

Clearly communicating your intentions with your advisor or legal professional is key. Different states may have different rules and laws to how these beneficiary assignments can play out. If you have questions about life insurance beneficiaries or would like to explore additional life insurance coverage, contact Twin City Underwriters.

This is an updated blog post that was originally published in 2022.

Choosing a life insurance plan can be difficult. Working with an insurance broker can help you find a plan that fits your needs. Schedule a one-on-one meeting with one of our life insurance brokers to get your insurance questions answered!