Who Should Be Your Life Insurance Beneficiary?

Choosing the right beneficiaries for your life insurance policy is an important decision, as naming beneficiaries is the only way to ensure you control who (or what) will receive the death benefit payout when you pass away. 

Who you should select as your beneficiary depends on your financial and familial situation as well as your state laws. There are no rules for naming a recipient, but who you choose will have specific implications. 

Do You Need a Life Insurance Beneficiary?

No, most insurance companies don’t require you to name a beneficiary for your death benefits. However, if you do not name a specific life insurance beneficiary, the proceeds will go to your estate. If you don’t have a will, your estate (including your life insurance payout) will go into probate. 

The probate process can be a lengthy, expensive process, and there’s no guarantee your loved ones will receive any of the money from your insurer. To ensure the people you intend to support financially, name primary and contingent beneficiaries.

Who Can Be Your Beneficiary?

You have several options when it comes to naming beneficiaries for your life insurance policy:

• Your spouse: Naming your husband, wife, or domestic partner as the primary beneficiary is common. This ensures your spouse has money to cover expenses if you die.
• Your children: Adult and minor children are often chosen as beneficiaries; however, insurance companies can give death benefits directly to minor children. You may need to establish a trust.
• Other family members: Parents, siblings, or relatives can be life insurance beneficiaries if you’re unmarried or a single parent.
• Your friends: You can designate a close friend, especially if you don’t have immediate family.
• Organizations: Charities, churches, and nonprofits. You can also designate a legal entity like your company as a beneficiary.
• Your estate: Remember to consider the estate tax and inheritance implications.

Who you name as the recipient of your death benefits depends on your situation. Should your spouse be your life insurance beneficiary if you have children? This makes sense for many families as the surviving spouse can continue to provide for the children and pay the mortgage and other expenses.

If you’re single with no kids, your life insurance beneficiary may be a parent or another beloved family member.

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Children as Life Insurance Beneficiaries

You can list children as your life insurance beneficiaries, but they must be 18 or 21 (depending on your state) to receive the benefits. Naming an adult child is straightforward, but for minor children, you’ll need to set up a trust for the minor and name the trust as the beneficiary. Alternatively, you can name a legal guardian to receive payouts on behalf of minors. A financial advisor can help you decide what’s best for your family.

However, many wrestle with naming their spouse or their children as beneficiaries. Having your spouse as the sole beneficiary is often the simplest option, but it also grants them full control of the proceeds, and there is no guarantee the funds will be used for the children if they are considered minors. 

If you name multiple beneficiaries—such as your spouse and your children—you can choose how much of the payout each party receives. For example, you might allocate 40% to your spouse, 30% to one child and 30% to your other child. 

Considerations for Naming Your Beneficiaries

When naming a beneficiary, consider whether to list them as a primary or contingent beneficiary:

• Primary life insurance beneficiaries are your first choice for receiving the benefits if you die. 
• Contingent life insurance beneficiaries, also called secondary beneficiaries, are second in line to receive the death benefit if the primary beneficiary dies before you do.

There are also two life insurance beneficiary designations for primary and conditional beneficiaries:

• Revocable beneficiaries can be changed by the policyholder at any time prior to the policyholder’s death.
• Irrevocable beneficiaries cannot be changed by the policyholder without the beneficiary’s consent.

If you opt to name an irrevocable beneficiary, do so wisely, as it can be hard to reverse. These types of beneficiaries are not as common, but they can protect the beneficiary legally from being removed without their knowledge.

Said another way, this designation can help ensure the death benefit reaches a specific person, like a child or a former spouse following a divorce.

Changing, Adding and Removing Beneficiaries

You can add, change, or remove life insurance beneficiaries at any time. Common scenarios include:

• Getting married or divorced
• Having a child
• Following the death of your current beneficiary
• Experiencing a change in financial status (for you or your beneficiary)

Regardless of who you choose to receive your life insurance payout, make sure they know who to file a life insurance claim. Give them access to all the necessary documentation to file the claim and discuss these documents with your family ahead of time. 

Bottom Line

Choosing the right life insurance beneficiaries helps support the people you leave behind financially. Designating the correct beneficiaries also helps avoid legal issues and ensures a timely payout.