What should I consider in naming life insurance beneficiaries?

People typically purchase life insurance for one simple reason: to ensure their loved ones and dependents are taken care of after their death.

But answering the question of who benefits from that policy when the benefit is paid can be less simple. How do you go about choosing a life insurance beneficiary? What are the rules around life insurance beneficiaries?

Let’s tackle some of the most common questions new policyholders have when selecting life insurance beneficiaries.

What does it mean to be a life insurance beneficiary?

A life insurance beneficiary is the person who will be receive a payout from your policy in the event of your death.

Who are the typical life insurance beneficiaries?

The most common life insurance beneficiaries are those you consider family: a spouse or partner, parent or siblings, or your children.

However, those aren’t your only options. You can also name an estate as your beneficiary — leaving the proceeds of your policy for the executor or administrator of your estate to distribute — or a charity or nonprofit organization that’s close to your heart.

Should I name more than one beneficiary?

You aren’t required to name more than beneficiary. You can choose a single person or list several.

If you choose to name more than one beneficiary, there are a couple of ways to proceed:

  • More than one primary beneficiary: If you name more than one primary beneficiary (a spouse and a parent, say) you will assign a percentage of the payout to each person.
  • Primary and contingent beneficiary: If you prefer the full payout go to a single person, you may want to choose a contingent beneficiary who will receive the payout in case something happens to your primary beneficiary.

Can I name a minor as a beneficiary?

The proceeds of your life insurance policy cannot go directly to a minor child in the event of your death.

To ensure a life insurance policy will provide financially for a minor after you die, consider the following options:

  • Designate the minor’s legal guardian as beneficiary under the Uniform Transfer to Minors Act (some insurance providers won’t let you designate a minor as a beneficiary unless you include the name of their legal guardian). This is a good situation to consult with legal advisors who know your circumstances to promote the best outcome if your beneficiary is a minor when the benefit is paid.
  • Create a trust in the minor’s name and name the trust as a beneficiary.

What happens to my life insurance if I don’t name a beneficiary?

What happens to life insurance with no beneficiary named?

Well, if you don’t designate any beneficiaries — or you’re preceded in death by all your primary and contingent beneficiaries — your policy will be paid out “by law.” The insurance policy typically specifies who may receive the benefit and in what order when none of the beneficiaries you name are available to accept payment. This means beneficiaries will be selected by default in the following order: surviving spouse, children, parents, and your estate.

It’s crucial to keep your policy up to date and ensure all the details (including beneficiaries named in the policy) are still in line with your wishes.

Are there ever reasons to change beneficiaries after my policy is active?

Life has a way of changing things, and it is important to keep your beneficiaries current with your ever-changing life events.

Major life changes such as divorce, remarriage, adoption, or the birth of a new child are good check-points to assess whether previous designations still reflect current wishes. Beneficiary designations can be difficult to overcome without some evidence the designation was made under pressure or while not of sound mind. Your beneficiaries may not reflect your changed affections and affiliations when it counts most unless you update your life insurance policy’s beneficiaries.

And remember that even if you’ve updated your last will and testament, your life insurance policy is a legally binding contract that is separate from your will. Only the beneficiaries specified on your policy will receive a payout from the life insurance policy.

Choose your beneficiaries wisely and thoughtfully and review your policy carefully on a regular basis. If you have questions about your life insurance beneficiary designation, contact your insurance provider or other personal advisors.