Your life insurance beneficiary is the person or entity who receives the death benefit when you die. Choosing the right beneficiary — and keeping your designations up to date — is one of the most important aspects of owning a life insurance policy.
Incorrect or outdated beneficiary designations are one of the most common causes of disputes and delays in claims processing.
Primary vs. Contingent Beneficiaries
Your primary beneficiary is first in line to receive the death benefit. Your contingent (or secondary) beneficiary receives the proceeds only if the primary beneficiary has predeceased you or cannot be located. Always name both to avoid the proceeds going through probate.
You can name multiple primary beneficiaries and specify the percentage each receives.
Who Can Be a Beneficiary?
Anyone can be named as a beneficiary — spouse, children, parents, siblings, friends, or even organizations like charities or trusts. However, naming minor children directly creates complications because minors cannot legally receive insurance proceeds. Instead, name a trust for the benefit of minor children.
Business partners can also be named as beneficiaries for buy-sell agreement funding.
When to Update Your Beneficiaries
Review and update your beneficiary designations after marriage, divorce, birth of a child, death of a current beneficiary, or any significant change in relationships. Many people forget this step, leading to ex-spouses or deceased individuals remaining as beneficiaries.
Make it a habit to review your designations annually or whenever a major life event occurs.