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Key points

  • A beneficiary is the person you choose to receive your life insurance death benefit after you die.
  • You can choose multiple beneficiaries and designate a certain percentage of the death benefit for each.
  • You should select a contingent beneficiary in case the primary one dies before you do or cannot be located.
  • If your child is a minor, you may want to choose an adult relative or set up a trust instead.
  • When you pass away, your beneficiary files a claim to collect the death benefit and choose how they will receive the payout.

How do I choose a life insurance beneficiary?

When you buy a life insurance policy—or opt into coverage through your employer—one of the first decisions you have to make is who your beneficiary will be.

The beneficiary is the person or entity that will receive your life insurance policy’s death benefit when you die. A beneficiary can also be an estate, trust or charity organization.

After you die, you policy beneficiary can file a claim with your life insurance company and receive the intended death benefit. The death benefit may be used to replace an income, help them manage every day expenses, cover funeral expenses, or even as a form of inheritance. But who do you pick as your life insurance beneficiary, and what should you keep in mind?

Who can be a life insurance beneficiary?

In most cases you can choose one or more of the following as your beneficiary:

  • Person, such as a spouse, child, sibling or other loved one.
  • Trust, which is recommended if the beneficiary is a minor.
  • Your estate.
  • An entity such as a business or charitable organization.

Who qualifies as a beneficiary for life insurance?

One of the main life events that prompts people to purchase life insurance is the birth of a child. So your first instinct may be to choose your child as your life insurance beneficiary. But if your child is younger than 18, you may want to think twice.

Though minors can be names as policy beneficiaries, they cannot receive or control the death benefit. Instead, you must appoint a custodian or guardian, such as a trusted family member or friend, who will manage the funds. If you name a minor as a beneficiary and don’t appoint a custodian, a judge must do so. That process can take a lot of time and money.

Your beneficiary doesn’t necessarily have to be a person. For example, if you’d like your insurance payout to go to a child, you can use a trust to hold the funds until your child is no longer considered a minor. In that case, you name the trust as the beneficiary and select a trustee to manage funds. You can also specify how funds are to be spent, such a on tuition.

A business is another example of a life insurance beneficiary that’s not a person. If you run a small company with a partner, making that business your beneficiary could help with a transition if you were to pass away. You can also name a charitable organization as the beneficiary of your life insurance policy if you’d like to make a sizable donation after your death, says Garcia.

Can I have more than one life insurance beneficiary?

It’s common to name multiple beneficiaries on your life insurance policy. For instance, you may decide to direct 50% to your spouse or partner, and 50% to your child. You can also specify that a portion of the benefit goes to a business or organization.

Additionally, you should consider selecting both a primary beneficiary and a contingent beneficiary for your policy. If you don’t choose a contingent beneficiary and the primary beneficiary can’t receive the insurance payout, the death benefit becomes part of your estate.

Primary beneficiary

The primary beneficiary is the individual(s) or entity you choose as the first in line to receive the death benefit.

Contingent beneficiary

The contingent beneficiary acts an alternative in the event the primary beneficiary dies before you do or can’t be located after your death.

Can I change the beneficiary on my life insurance policy?

There are two types of life insurance beneficiaries: revocable and irrevocable. The type you choose will determine whether or not you can update your beneficiary during your lifetime.

If you select a revocable beneficiary, you can change your beneficiary later. This is the more common option. If you choose an irrevocable beneficiary, you won’t be able to switch the beneficiary without that person’s permission.

Tip: It’s crucial to keep your beneficiary designations updated as time passes and your life changes. If you get divorced and remarried, for example, you’ll want to make sure that your previous spouse is no longer the beneficiary of your life insurance policy.

How to choose a life insurance beneficiary

In many instances, choosing a life insurance beneficiary is as easy as asking yourself who currently relies on your income and will need financial support after you die. If that person is young or you’re nervous about how they might handle a large lump sum of money, you can set up a trust with rules for how the money is used and distributed to the beneficiary.

But there are also state and federal rules and laws that can affect your choice.

For instance, if you’re married and live in one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin), you’ll have to get your spouse to sign off if you choose someone other than them as the beneficiary to your life insurance policy.

You may also need to factor in any federal or state financial support programs, such as Medicaid. For instance, if your beneficiary has special needs and receive Medicaid, the death benefit can affect the financial aid they receive.

How the payout process works

As long as your life insurance policy is in good standing when you pass away, your beneficiary or beneficiaries can file a claim with the life insurance company. The exact process can vary by company, but in each case the beneficiary will need to submit a copy of your death certificate.

Once the claim is approved, the beneficiaries can choose how to receive the death benefit. Available options may vary by insurer, but typically you can choose a lump sum, installment payments, a retained asset account or an annuity.

How long does it take for life insurance to pay a beneficiary?

The process is typically quick and easy—beneficiaries usually receive the money within a 30 to 60 days. However, if the policy is still in what’s known as the contestability period, which is usually the first two years after opening, it may take longer. That’s because the contestability periods allows insurance companies the opportunity to investigate the claim to ensure you didn’t misrepresent your health status when you purchased the policy.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Jacqui Kenyon

BLUEPRINT

Jacqui Kenyon is a writer and editor specializing in the subjects of retirement, mortgages, budgeting and taxes. She is also a ghostwriter, editorial consultant and media coach based in Brooklyn, NY. Her work has appeared in Business Insider, Forbes, The Daily Beast, Rate.com, Fabric, and more.

Jennifer Lobb

BLUEPRINT

Jennifer Lobb is deputy editor at USA TODAY Blueprint and is an experienced insurance and personal finance writer. Jennifer served as an insurance staff writer and editor at U.S. News and World Report and deputy editor of insurance at Forbes Advisor. She also spent several years covering finance and insurance for various financial media sites, including LendingTree and Investopedia. For nearly a decade, she’s helped consumers make educated decisions about the products that protect their finances, families and homes.