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Life Insurance

Beneficiaries

There are important details associated with beneficiary designations that life insurance policy owners must be aware of. A beneficiary is chosen by the life insurance policy owner to be the recipient of the death benefit at the insured's death. The type of beneficiary chosen has a significant impact on the life insurance policy owner's future options and claim proceeds.

Types of Beneficiaries

The two types of life insurance beneficiaries are either revocable or irrevocable. Revocable beneficiaries may be changed by the policy owner at any time because it is understood that the beneficiary has no vested interest in the policy benefits. Irrevocable beneficiaries impose limits on the policy owner’s ability to assign, transfer and even change the beneficiary because it is understood that the beneficiary has a vested interest in the policy benefits. Life insurance policy benefits include the death benefit and any cash values.

Succession of Beneficiaries

Beneficiary successions maintain the continuity of life insurance policy proceeds in the event the beneficiary is no longer alive. There are three typical beneficiary designations including primary beneficiary, contingent beneficiary and tertiary beneficiary. The primary beneficiary has first claim to the life insurance policy proceeds. If the primary beneficiary is deceased, the contingent beneficiary receives the policy proceeds. Finally, if both primary and contingent beneficiaries are deceased, the tertiary beneficiary receives the proceeds. It is typical that if the primary and contingent beneficiary predeceases the insured, proceeds are paid to the estate of the insured.

Designation Options

Beneficiaries may be identified in several ways. The two most common designations are by individual or by class. The individual designation is the most specific and names the beneficiaries explicitly. The class designation is normally used when beneficiaries are minors and includes the options of per capita or per stirps death benefit distributions. Per capita provides for equal distribution of the proceeds among the surviving beneficiaries. Per stirps distributes policy proceeds to a deceased beneficiary’s heirs rather than redistributing it among the surviving beneficiaries.