How to name and change life insurance beneficiaries

The premise of life insurance is simple. You pay a premium to keep your policy active, and when you die, your insurer will pay a death benefit to your beneficiaries. You have the freedom to choose your own beneficiaries, but it can get a little sticky if you live in a community property state or want to leave money to a minor.

What is a life insurance beneficiary?

A life insurance beneficiary is the person, organization or entity you nominate to receive the proceeds of your life insurance policy when you die. Some states impose regulations on who you can and cannot name.

Who’s eligible to be a beneficiary?

Though most people name their spouse and children as their beneficiaries, you can elect a friend, family member, business partner, charitable organization or a legal entity — like your estate or a trust.

There are a few things to keep in mind when naming beneficiaries.

Community property laws apply in certain states

If you’re married and live in a community property state, you’ll need your spouse’s consent if you want to nominate someone else as your beneficiary. These are the states where this law applies:

Can I name a charity as a beneficiary?

If you’d like to continue your charitable giving after you’re gone, you can list a charity — or multiple charities — as your beneficiary. There are no federal or state tax benefits to doing this, so you won’t be able to write off your premium payments as income tax deduction. However, if you purchase a permanent policy, the proceeds will qualify for the federal estate tax charitable deduction.

Can I nominate a minor as a beneficiary?

Life insurance companies won’t pay out your policy directly to a minor. If you want to leave money to your children, you’ll need to go down one of the following paths:

• Set up a life insurance trust. As the grantor of the trust you’ll choose a trustee to manage the trust and distribute the money according to your wishes. You can also decide how the funds will be allocated, and when they’ll be paid out.
• Name an adult custodian. Under the Uniform Transfers to Minors Act (UTMA), you can name an adult custodian to manage the money from your life insurance policy while the children are still minors. Your life insurance company can help you to establish an UTMA account. When you die, the custodian can use the funds to cover things like education and housing costs. Once the children reach the age of maturity — which is 18 to 21 in most states — the custodian passes the remaining money onto them.

Can I have multiple beneficiaries?

Yes. You can name more than one beneficiary, and allocate the percentage of the death benefit that should go to each.

How to name a beneficiary

Once your policy application is approved, the insurer will ask you to designate beneficiaries. You’ll need to provide their full names, birthdates and if possible, Social Security numbers. This will make it easier for your insurer to identify your beneficiaries after your death.

If you’ve taken out a policy, it’s important to tell your beneficiaries that you’ve nominated them. Life insurance companies aren’t legally obligated to contact beneficiaries upon a policyholder’s death, so they’ll need to take action to claim the death benefit.

Revocable vs. irrevocable beneficiaries

When you designate your beneficiaries, you’ll also have to say if they’re revocable or irrevocable. You can adjust or remove revocable beneficiaries — which is a good option if you think your circumstances might change. For example, if you buy life insurance while you’re single, you could make your spouse your beneficiary if you get married.

On the other hand, irrevocable beneficiaries cannot be changed without their consent.

Can I update my beneficiaries?

You can update your revocable beneficiaries at any time. You’ll need to contact your life insurance company, who will then typically direct you to fill out an online or paper form. If you have an estate and/or will, you might want to notify your estate planner about the beneficiary change or update your will if necessary.

When should I consider changing my beneficiaries?

It’s a good idea to review your beneficiaries whenever you go through a major life change, such as:

This is also a good time to review your policy and make sure you have adequate coverage. If your financial obligations have increased, you could look into purchasing another policy or boosting the value of your current coverage.

How are beneficiaries paid out?

Most insurers pay out the death benefit within two weeks of approving a claim, but some take as long as 60 days.

The beneficiary can choose how they want to receive the money. Usually, they’ll be given two options:

• Lump sum payment. You’ll get a one-time payment from the insurance company.
• Installments and annuities. You can opt to receive the money in installments, typically over the course of five to 40 years. For example, you might request to get 20% of the death benefit every year for five years, or 10% every year for 10 years.

Is the payout taxed?

No. The death benefit isn’t considered taxable income.

There’s one exception to this rule. If the policyholder’s estate is valued at $11.58 million — the IRS threshold for 2020 — or more, it will be subject to federal estate taxes. The life insurance payout will be rolled into the estate and taxed accordingly.

Can a beneficiary be denied the death benefit?

Your insurer may not pay out your policy in these situations:

• You died of a disease you didn’t mention in your application. Or, you died from a health condition caused by a habit you failed to tell your insurer about. For example, if you die of a heart attack but didn’t disclose you had a heart condition, your insurer might deny the death benefit.
• You died while participating in a high-risk hobby you didn’t mention. In this case, your insurer might pay out the death benefit —but they’ll deduct the premiums you should have been paying for your policy, which means your loved ones won’t get as much money.
• You committed suicide within the first two years of taking out a policy. All life insurance policies have a suicide clause to this effect. If you die in suspicious circumstances, your insurer can also delay the death benefit while they investigate.
• There’s proof your beneficiary murdered you. This is known as the “slayer rule,” and insurers in most states won’t pay if there’s evidence against the person trying to claim the death benefit.

What happens if you die without a life insurance beneficiary?

Your policy will pay out the death benefit to your estate, and it might be subject to probate — which is when the court gets involved to determine who’s entitled to your assets.

What happens if your beneficiary dies before the death benefit is paid out?

If your primary beneficiary passes away before your life insurance company processes the claim and pays out the death benefit, the proceeds of your policy will go to their estate. Since they were living at the time of your death, they — and their family — is still entitled to the payout.

What happens if you die at the same time as your primary beneficiary?

Let’s say your spouse is your primary beneficiary, and you both die in an accident. What happens next comes down to the timing of the deaths. If your spouse lived for longer than you, the proceeds would be paid to their estate. But if the evidence shows that you lived longer, the proceeds would go to your secondary beneficiary — aka the next person on the list.

If it’s unclear who died first, your insurer will pay out your policy to your secondary beneficiary, if you have one. Otherwise, the money will go to your estate.

What happens if you have multiple primary beneficiaries and one dies?

In this case, their portion of the death benefit would be split between the remaining beneficiaries.

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Sproutt		18 - 60 years old	$50,000	$10,000,000	5, 10, 15, 20, 25 and 30 years	No	This life insurance broker combines technology and the human touch to match you with a policy tailored to your needs.	Go to site More Info	Compare	loading Fetching your data...
Bestow		21 - 54 years old	$50,000	$1,000,000	10 or 20 years	No	Affordable 10- and 20-year term life insurance policies with instant quotes and no medical exams.	Go to site More Info	Compare	loading Fetching your data...
Policygenius		18 - 85 years old	$50,000	$10,000,000	10, 15, 20, 25, 30 years	Depends on provider and policy	Compare affordable quotes from 12+ A-rated life insurance companies side-by-side.	Go to site More Info	Compare	loading Fetching your data...
Everyday Life		20 - 75 years old	$100,000	$10,000,000	10, 15, 20, 25 or 30 years	No	Build a customized laddering strategy to target specific financial responsibilities and save on term life.	Go to site More Info	Compare	loading Fetching your data...
Fabric		25 - 60 years old	$100,000	$5,000,000	10, 15, or 20 years	Depends on policy	Get affordable term life insurance with accelerated underwriting or no-exam coverage up to $1,000,000. Available in all states except CA, NY and MT.	Go to site More Info	Compare	loading Fetching your data...
LadderLife™ Life Insurance		20 - 60 years old	$100,000	$8,000,000	10, 15, 20, 25 or 30 years	No	Term life insurance with no policy fees and the freedom to cancel anytime. Simple application process that can get you approved for coverage instantly.	Go to site More Info	Compare	loading Fetching your data...
Haven Life		18 - 64 years old	$100,000	$3,000,000	10, 15, 20, or 30 years	No exams for some applicants	Customized term life insurance policies up to $3 million, no medical exam for certain applicants.	Go to site More Info	Compare	loading Fetching your data...

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Bottom line

To make sure the proceeds of your life insurance policy go to the right person — or people — when you pass away, it’s important to name beneficiaries. In most states, you can nominate anyone you want as a beneficiary, and update them if you experience any major life changes.

If you’re shopping around for a policy, take the time to compare life insurance companies.

Frequently asked questions about life insurance beneficiaries

• Which type of life insurance cover is right for me?

  The best life insurance policy for you comes down to your needs and budget.
  Term life insurance is the cheapest policy, and it offers temporary protection for a set number of years — like 10, 15 or 20.
  If you want lifelong coverage, a permanent policy may be a better option. These policies build cash value and become a cash asset over time, so they’re typically six times more expensive than term life.
  

• How are policy premiums calculated?

  Your life insurance premium is based on your age, gender, health and smoking status, as well as lifestyle factors like your job, hobbies and driving record.
  Each insurance company has its own underwriting guidelines, so rates can vary — which is why it’s worth shopping around to make sure you’re getting the best deal.

• When should I think about getting life insurance?

  If you have people who rely on you financially, consider taking out a life insurance policy. It’s primarily designed to replace your income when you die, so it can give your loved ones a sense of financial security.
  It’s also worth looking into life insurance if you have debt or assets to protect, and you don’t have the savings to self-insure.

• Do you need life insurance to take out a mortgage?

  No. Some insurers offer mortgage protection insurance, which is specially designed to pay off your mortgage if you die prematurely — but it’s not required.
  Your beneficiaries can also use the proceeds from a regular life insurance policy to cover your mortgage repayments.

• When should I review my life insurance cover?

  Aim to reassess your coverage whenever you experience a major life change — like tying the knot, having kids, or getting a promotion. If you realize you’re now underinsured, you can top up your coverage by purchasing another term life insurance policy. This strategy is known as “laddering.”

• What does it mean to put a life insurance policy in trust?

  A life insurance trust protects your assets and passes them on to your loved ones when you die. The trust is both the owner and beneficiary of your policy, and you choose a trustee to manage the trust and allocate the money according to your wishes upon your death.

  Since the trust owns the policy, it’s not counted as part of your estate — which is helpful for wealthy individuals whose loved ones may otherwise have to pay estate taxes.

• I have a pre-existing medical condition. Can I get life insurance?

  Yes. You can get life insurance with a pre-existing condition, but you can expect to pay higher rates.

  If you’d like to skip the medical exam, you can opt for a simplified issue, guaranteed issue or final expense policy.

• Is life insurance available for over 50s and over 60s?

  Yes, you can purchase life insurance in your 50s and 60s — though your options may be limited.
  In your 50s, you should be able to buy a lengthy term or permanent policy. But most insurance companies stop selling term life insurance at age 65, and permanent policies at age 70 or 75. However, you can still buy a final expense policy.

• What happens to your life insurance policy if you miss payments?

  You have a grace period to make up missed payments — it varies between insurers, but usually lasts around 30 days. During this time, your policy stays in force. But if you fail to pay your premium within the grace period, your insurer may cancel your policy.