- By the dedicated team of editors and writers at Newsletter Station.
Life insurance is an important financial planning tool that can provide financial support to your loved ones after your death. When you purchase a life insurance policy, you name one or more beneficiaries who are entitled to receive the policy's death benefit.
However, life circumstances change. Marriage, divorce, the birth or adoption of a child, the death of a beneficiary, or changes to your estate plan may all be reasons to review your beneficiary designations.
Fortunately, many life insurance policyholders can change their beneficiaries during their lifetime. Understanding how beneficiary designations work and keeping them current can help ensure your life insurance proceeds are distributed as you intend.
Can You Change Life Insurance Beneficiaries?
In many cases, yes. If you are the policy owner and your beneficiary designation is revocable, you can generally change your beneficiaries by following your insurance company's procedures. The National Association of Insurance Commissioners recommends reviewing beneficiary information regularly and after major life events.
However, you can't change every beneficiary designation freely. A beneficiary may be designated as irrevocable, which generally means you need that beneficiary's consent before making certain changes. Your policy documents determine whether a beneficiary is revocable or irrevocable, so check your policy or contact your insurer if you're unsure.
What Is a Primary Beneficiary?
A primary beneficiary is the person, organization, or other eligible entity designated to receive the life insurance proceeds when you die, assuming the beneficiary survives you and the designation remains valid.
You can generally name one primary beneficiary or several. If you name multiple beneficiaries, your policy may require you to specify how to divide the proceeds, such as by percentage or in equal shares.
Be as specific as possible when completing beneficiary information. Using a person's full legal name and providing requested identifying information can help reduce confusion when the claim is processed.
What Is a Contingent Beneficiary?
A contingent beneficiary, sometimes called a secondary beneficiary, receives the death benefit if the primary beneficiary cannot, such as when the primary beneficiary dies before the insured.
Naming contingent beneficiaries can provide an additional layer of protection. For example, a policyholder might name a spouse as the primary beneficiary and children as contingent beneficiaries.
The appropriate arrangement depends on your circumstances and overall estate plan.
Reasons to Change Life Insurance Beneficiaries
Several life events may prompt you to review or change your beneficiary designations.
Marriage or Remarriage
Getting married may change how you want your financial assets distributed. If you previously named another person as your beneficiary, review your policy to determine whether your current designation still reflects your wishes.
Remarriage is another important reason to review beneficiary designations, particularly if you have children or other beneficiaries from a previous relationship.
Divorce
Divorce is an important time to review life insurance beneficiaries. Depending on the policy, applicable state law, your divorce agreement, and court orders, restrictions or specific requirements may affect beneficiary designations.
Don't assume that changing your will automatically changes the beneficiary on your life insurance policy. You generally need to update beneficiary designations directly with the insurance company.
Birth or Adoption of a Child
Adding a child to your family is another good reason to review your life insurance policy. Parents may want to name children as contingent beneficiaries or make other changes as part of a broader estate plan.
Naming minor children directly can create additional considerations because minors generally cannot receive and manage insurance proceeds in the same way as adults. Depending on your circumstances, a trust or another arrangement may be more appropriate. Consult an estate-planning professional before making this type of designation.
Death of a Beneficiary
If a beneficiary dies, review your policy promptly. You may need to designate a new beneficiary or update how the remaining beneficiaries should receive the proceeds.
This is also a good opportunity to confirm that your contingent beneficiaries are still appropriate.
Changes to Your Estate Plan
Your life insurance beneficiary designation should generally be considered as part of your overall estate plan. If you establish or revise a trust, update your will, or make significant changes to how you want your assets distributed, review your life insurance policy as well.
A will generally does not override a valid life insurance beneficiary designation. If the policy names your estate as beneficiary, however, the proceeds may be handled as part of the estate.
Changes in Family or Personal Relationships
Relationships can change over time. You may decide that a former partner, family member, or other individual should no longer receive your life insurance proceeds, or you may want to add someone who has become an important part of your life.
Reviewing your beneficiaries periodically helps ensure that your policy reflects your current intentions.
How to Change a Life Insurance Beneficiary
The exact process varies by insurance company, but these steps can help you get started.
Contact Your Insurance Company
Contact the insurer that currently services your policy. If you have an insurance agent, they may also explain the process and provide the necessary paperwork.
Review Your Current Designations
Before making changes, find out who is currently listed as your primary and contingent beneficiaries. Also determine whether any beneficiary is designated as irrevocable.
Complete the Required Form
Your insurer may provide a beneficiary change form through its website, by mail, through an agent, or through an online account.
You'll generally need to provide information about the new beneficiaries and indicate how the death benefit should be distributed.
Provide Any Required Documentation or Consent
Some situations require additional documentation. If a beneficiary is irrevocable, for example, you may need that person's consent before certain changes can be made.
If your situation involves divorce, a trust, a minor beneficiary, or another complicated estate-planning issue, consider consulting an attorney or other qualified professional before submitting changes.
Submit the Change to the Insurer
Follow the insurance company's instructions for submitting the completed form. Requirements vary, so don't assume that a change is effective simply because you've completed a form.
Confirm the Change Was Processed
After submitting your request, confirm with the insurance company that it accepted and recorded the change. Keep the confirmation and copy the updated beneficiary information with your important financial documents.
Don't Forget to Tell Your Beneficiaries
It's also helpful to make sure your beneficiaries or a trusted person knows you have a life insurance policy and where to find important policy information.
The NAIC recommends keeping information about your insurance company, policy, and policy location accessible to beneficiaries or trusted advisors. This can make it easier for your loved ones to locate the policy and begin the claims process when necessary.
You don't necessarily need to disclose every detail of your estate plan, but someone you trust should know where to find the information.
Are Life Insurance Benefits Taxable?
Life insurance death benefits paid to a beneficiary are generally not included in the beneficiary's taxable income for federal income tax purposes. However, exceptions can apply, and interest paid in addition to the death benefit is generally taxable.
Life insurance can also have estate-tax considerations in certain circumstances. A policy's tax treatment can depend on ownership, policy structure, estate size, and other factors. If you're using life insurance as part of a larger estate plan, consider discussing the policy with a qualified tax or estate-planning professional.
Review Your Beneficiaries Regularly
Life insurance beneficiary designations are easy to overlook, particularly when a policy has been in place for many years. A beneficiary who was appropriate when you purchased the policy may no longer reflect your wishes today.
Consider reviewing your beneficiary designations after major life events such as marriage, divorce, the birth or adoption of a child, or the death of a beneficiary. An annual review can also help you catch outdated information.
Keeping your beneficiaries current is an important part of maintaining an effective financial and estate plan. If you're unsure which designation is appropriate for your situation, your insurance professional, attorney, or tax advisor can help you understand your options.
