Life Insurance Beneficiary Rules & Definitions

A life insurance policy can help you take care of the people you love, even after you’re gone. Choosing who will receive the payout from your life policy is an important decision. Do you want to make sure your spouse will have enough money for household expenses if you pass? That your kids can still attend college? That your business will survive into the future? 

The choice is yours, but here’s some guidance as you choose your beneficiaries.

What is a life insurance beneficiary? 

Your beneficiary is the individual or entity that receives the sum of money your life insurance pays when you pass away, called the policy’s “death benefit.” You get to choose your beneficiaries. 

What are the rules for choosing a life insurance beneficiary? 

When you buy life insurance, you can name nearly anyone you wish as your beneficiary—a spouse or partner, a child, a friend, your business partner, or a favorite charity. But talk to your agent, because certain state laws or insurance policy rules might narrow your choices.

If you’re married and live in a community property state such as Arizona, California, or Nevada, you need to name your spouse as your beneficiary—or get your spouse’s permission to choose someone else. 

If you have children who are minors, keep in mind that most insurance companies won’t pay death benefits directly to minors. While you can’t name your 10-year-old daughter as your direct beneficiary, you can still make sure she’s taken care of.

• Set up a trust and name your child as the beneficiary of the trust. With a trust, you appoint a trustee who uses the funds to attend to your child’s needs, and you can direct how the money is used. So, for example, you might want a portion to be used for your child’s current living expenses, a portion set aside for college, and the rest distributed to your child on her 25th birthday. 
• If you’re married, name your spouse as the beneficiary of your policy. Then if you die, your spouse will receive the money, which can be used for household expenses and your child’s ongoing needs. It’s a good idea to name your spouse as your primary beneficiary, and also set up a trust as the contingent beneficiary. That way, if you and your spouse die at the same time, the trustee can take over.

If you’re a devoted pet parent, you won’t be able to name Fido or Fluffy as your beneficiary. But rest easy—you can still ensure that your pup, tabby, or chameleon continues to live the good life after you depart. Simply name your pet’s guardian as a beneficiary and set up a trust your policy would pay into to cover your pet’s needs. 

What happens if I don’t have a beneficiary? 

If you don’t have a beneficiary—perhaps you didn’t name one, or your beneficiaries passed before you did—a couple of things might happen. 

If you were married and lived in a community property state like Arizona, California, or Nevada when you passed, your life insurance payout may automatically go to your spouse.

Otherwise, your policy will likely go to your estate. If this happens, your death benefit—along with your other assets—will go through probate court. A judge will sort it out, using some of the money to settle your debts and giving the rest to your next of kin. If you don’t have any living relatives, your money will go to the state. The probate process can keep your money trapped in legal limbo for months, so naming beneficiaries in your life insurance policy is the best way to ensure that your loved ones receive a payout—and receive it quickly.

What is the difference between a primary beneficiary and a contingent beneficiary?

Your primary beneficiaries are first in line to receive your life insurance policy’s death benefit when you pass. If your primary beneficiaries are no longer living at the time of your death, your contingent beneficiaries, or secondary beneficiaries, will receive the money. 

Depending on your preference, beneficiaries can be either irrevocable or revocable—unchangeable without the beneficiary’s permission, or changeable.

If I choose more than one beneficiary, how can I assign benefits?

If you have multiple beneficiaries, you can choose which portion of the payout each party receives. So if you name both your spouse and a charity as beneficiaries, you might direct 80% of the payout to your spouse and 20% to the charity. 

What happens if my beneficiary passes before I do? 

If your primary beneficiaries pass before you do, your life insurance payout will go to your contingent beneficiaries. If there are no living beneficiaries at all, the money will be paid to your estate and will go through the probate process, with a judge making decisions about how to distribute the money.

To stay in control of where the money goes, make sure to name beneficiaries on your policy, and if any of your beneficiaries pass away, update your policy right away. 

What is the life insurance designation after a divorce?

If you’re getting a divorce, revisit your life insurance policies. A divorce doesn’t magically revise your policy to reflect your new lives, so you and your spouse will need to do that yourselves. 

If you’ll be paying alimony or child support to your former spouse, the court may require that you have life insurance, to keep the financial support flowing after your death. 

If you don’t have children, you may decide to change your policy’s beneficiary from your spouse to someone else. If you and your spouse have a whole or universal policy—which accumulates cash value over time—you might decide to cash out the policy and split the proceeds.

You and your spouse likely have plenty of questions, so talk to your financial planner and your respective attorneys about the best way to proceed.

Is it difficult to change the beneficiary?

It’s easy to change your beneficiary, but you’ll need to have some information handy: your new beneficiary’s full legal name, date of birth, social security number, and contact information. Simply contact your insurance agent or use your insurer’s online form to make the change. 

If you have multiple beneficiaries, you’ll need to indicate what portion of the death benefit payout you’d like your new beneficiary to receive. You can choose to make the beneficiary irrevocable or revocable.

In certain cases, you’ll need permission to make changes, for instance:

• If you’re married and live in a community property state such as Arizona, California, or Nevada, then it is recommended you name your spouse as your beneficiary or get your spouse’s permission to choose someone else. Community property laws may trump your beneficiary designation on a life insurance policy under certain circumstances.  We recommend you consult with your legal professional to address your specific situation.
• If a current beneficiary is irrevocable, you’ll need that person’s permission to remove them as a beneficiary, and you may need their permission to make any changes to your life insurance policy. 

How does a beneficiary make a claim on a life insurance policy?

To submit a claim against a life insurance policy:

• Gather documents. You’ll need a certified copy of the death certificate; the primary beneficiary’s death certificate (if the claimant is a contingent beneficiary); a copy of the life insurance policy (if you don’t have it, contact the insurance company for assistance); and a claim form from the insurance company.
• File the claim. Fill out the company’s claim paperwork, attaching any necessary documents such as the death certificate. Oftentimes, you can file a claim online. You can choose how to receive the payout—either as a lump sum or in installments over time.
• Watch your mailbox or bank account. Insurance companies generally pay life insurance claims within a couple weeks to a couple months.