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Published: Sep 26, 2023 7 min read

Buying a life insurance policy requires you to make several decisions, including the coverage type. As you compare your options, you must decide what type of life insurance to purchase and whom to name as your beneficiaries. A life insurance beneficiary receives the payout of your policy when you die.

In this guide, we’ll walk you through what a life insurance beneficiary is, the different types, beneficiaries' rights and considerations you should make when designating one.

What is a beneficiary for life insurance?

The purpose of purchasing a life insurance policy is to secure a death benefit (e.g., the cash payout) when you die. Life insurance comes in several forms, including term, whole and universal. A life insurance beneficiary receives the death benefit upon your passing.

Your life insurance beneficiary can be a person or entity, such as an estate, trust, charity or business. You typically name your insurance beneficiary at the time of purchasing a policy, which is vital to ensuring your death benefit is properly claimed. However, if you fail to name a beneficiary, the life insurance proceeds will generally become part of your estate along with the rest of your remaining assets.

If you have questions about the various types of life insurance policies available, reading about life insurance for beginners is a great place to start.

Types of life insurance beneficiaries

You can choose to have no beneficiary on life insurance, but this isn’t a common or wise practice. Whether you’re considering a term vs. whole life insurance plan, the point of those policies is to secure a death benefit for an heir. As you determine who or what to name as your beneficiary, you must understand the two main types of beneficiaries.

The following section discusses the differences between primary and contingent beneficiaries, as well as revocable and irrevocable beneficiaries.

Primary life insurance beneficiary

A primary beneficiary of life insurance is the person or entity first in line to receive your life death benefit, provided they’re alive, not responsible for your death and able to be located. Typically, this person is a spouse, child or family member; however, it can be any person or entity you choose. This beneficiaries of life insurance policies receive proceeds unless one of the following events occurs:

  • The primary beneficiary dies before you.
  • The primary beneficiary cannot be reached.
  • The primary beneficiary dies at the same time as you.
  • The primary beneficiary is responsible for your death.

Contingent life insurance beneficiary

A life insurance policy’s contingent beneficiary, or secondary beneficiary, is the next person or entity in line for your death benefit if, for some reason, the primary beneficiary isn’t eligible to receive the benefit. Naming a contingent beneficiary to your life insurance policy provides an answer to whom or what the proceeds should be assigned if the primary beneficiary is no longer alive or cannot be located.

Revocable vs. irrevocable beneficiary

In addition to choosing between primary and contingent beneficiaries, you will also have to choose between a revocable or irrevocable beneficiary. Revocable beneficiaries have no legal interest in the death benefit while the policyholder is still alive, and that beneficiary can be changed at any time by the policyholder without needing their consent. Conversely, irrevocable beneficiaries have certain rights regarding the death benefit and therefore cannot be changed on a life insurance policy without first consenting to it.

When searching for the best life insurance plans, speak to an agent to learn more about the types of beneficiaries you can choose.

The rights and responsibilities of life insurance beneficiaries

To receive a life insurance policy’s death benefit, beneficiaries must file a life insurance claim. Informing your beneficiaries that you listed them on your policy is imperative; they must know about the policy to file a claim. Most companies send payment shortly after a claim is filed, but the time frame varies. As part of the claim, the beneficiary must submit the policy number and death certificate before the insurance company approves and pays the proceeds.

What types of expenses can your life insurance beneficiary pay for with the benefit?

When a beneficiary receives a life insurance payout, they can use the money in any way they choose. Generally, most life insurance proceeds are not considered taxable income. Beneficiaries often use the money to cover funeral expenses, debts, loss of income and other financial hardships, but there are no rules regarding how they must spend the money. Because of this, choosing the right beneficiaries is vital as you want them to spend your remaining resources wisely.

Who can be a beneficiary of life insurance?

You can name any person or entity your life insurance policy’s beneficiary. A married person often names their spouse as the primary beneficiary, and many people name their children. If you designate a minor as a beneficiary, life insurance rules require a legal guardian to manage the proceeds until the child is 18. This rule prevents children from accessing large sums of cash before adulthood. In addition to naming people, you can also name entities as your basic life beneficiary, including charities, trusts, estates and businesses.

Designating a life insurance beneficiary

Before naming a person(s) or entity as beneficiary of your life insurance policy, you should consider a few things, beginning with the purpose of the money. Why do you want the beneficiary to receive life insurance death benefits after you die?

Here are common reasons:

  • To settle your debts
  • To provide your family with means to maintain living standards
  • To pay your funeral expenses
  • To provide financial support for your children
  • To protect a special needs child

What is a life insurance beneficiary FAQs

When can a policyowner change a revocable beneficiary?

A policyholder may change a revocable beneficiary at any time without the consent of the currently named beneficiary. Most life insurance plans have revocable beneficiaries.

How many beneficiaries can you have?

There's no limit to the number of beneficiaries you can have on a life insurance policy. You can choose one person, more than one person or name an entity or entities.

Can a life insurance beneficiary be changed after death?

You name your beneficiaries after choosing a life insurance company and one of their policies. You can change revocable beneficiaries at any time while you're living, but changes can't be made after you die. Whichever beneficiary you list will receive the life insurance death benefit after you pass away.

Can nursing homes take your life insurance from your beneficiary?

The beneficiaries you designate on your policy receive the proceeds. A nursing home cannot take this money or force the beneficiary to use it to pay your debts.

What happens to life insurance with no beneficiary?

Without a beneficiary, money from a life insurance policy goes to your estate. The death benefit may then have to go through probate, making paying out the policy difficult and delaying the process. Furthermore, if your estate is worth more than the federal estate tax threshold, it could be considered taxable income for your heirs, whereas death benefits paid directly to beneficiaries are generally not taxable income.

Is your spouse automatically your beneficiary on life insurance?

Life insurance beneficiary rules vary by state. Some states — including Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin — automatically give a spouse rights to at least part of an insurance policy. This is known as "community property." Alaska and Tennessee are considered "opt-in" states with community property, giving spouses an option to participate.

Community property states require spouses to sign a document stating that they agree not to be named as the beneficiary on their spouse's policy. Additionally, some states revoke a spouse's beneficiary rights after a divorce, while others don't.

Summary of Money’s what is a life insurance beneficiary

A life insurance beneficiary is the designated recipient of your life insurance death benefit after you pass away. You can choose for that beneficiary to be a person (e.g., children, spouse or family member) or entity (e.g., charity, trust or business), and they can use the proceeds however they wish, and in most cases, will not have to pay taxes on the death benefit. Additionally, you can name primary and contingent beneficiaries, as well as revocable and irrevocable beneficiaries. Before designating your beneficiaries, consider who will need the funds and how they will use them.