
Sign up & start saving!
Get our weekly newsletter for the latest in money news, credit card offers + more ways to save
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.
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.
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.
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:
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.
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:
Yes. You can name more than one beneficiary, and allocate the percentage of the death benefit that should go to each.
There are three types of life insurance beneficiaries: primary, contingent and final.
You should name at least one primary beneficiary, but nominating a contingent and/or final beneficiary is optional.
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.
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.
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.
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.
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:
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.
Your insurer may not pay out your policy in these situations:
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.
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.
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.
In this case, their portion of the death benefit would be split between the remaining beneficiaries.
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.
This fintech just branched out into low-cost life insurance — but its lineup is limited.
Get an incentive to meet your existing health and fitness goals with a discounted premium.
Find unusually low face values for a whole life policy, ideal for supplemental insurance.
Learn your policy options based on the type of transplant and your health status now.
Get pet insurance that reimburses 100% of your vet bills or a separate wellness plan.
Use your death benefits to help pay for medical expenses while you’re still alive.
A poor driving record may result in higher rates on your life insurance, with some insurers turning you away altogether.
No-cost options are available, but these policies may not offer the coverage you need.
A no-exam policy may work best, but shop around if you’re in good health otherwise.
Learn which short- and long-term add-ons are free and why others might be worth the extra cost.