Life Insurance Beneficiary Guide: Who Should You Name?

Choosing the right beneficiary for your life insurance policy is just as important as the coverage amount itself. An incorrectly named beneficiary can result in delays, legal battles, or benefits going to the wrong person. This guide explains everything you need to know about making this critical decision correctly.

Once you've planned your beneficiary strategy, compare life insurance quotes from top-rated insurers.

Understanding Beneficiary Types

Life insurance policies allow you to name different types of beneficiaries with specific roles:

Primary Beneficiary

The primary beneficiary is the first person (or entity) in line to receive the death benefit. If you name multiple primary beneficiaries, you'll specify what percentage each receives. The total must equal 100%.

Contingent (Secondary) Beneficiary

The contingent beneficiary receives the death benefit only if the primary beneficiary is deceased, cannot be located, or disclaims the benefit. Always name contingent beneficiaries, without them, proceeds may go through probate if your primary beneficiary predeceases you.

Per Stirpes vs Per Capita

These terms determine what happens if a beneficiary dies before you:

• Per stirpes: The deceased beneficiary's share passes to their descendants
• Per capita: The deceased beneficiary's share is divided among surviving beneficiaries

Example: You name your three children as equal beneficiaries per stirpes. If one child dies before you, that child's one-third share goes to their children (your grandchildren). With per capita, the surviving two children would split the benefit 50/50.

Who Can Be a Beneficiary?

Life insurance beneficiaries can be:

• Individuals: Spouse, children, parents, friends, anyone with an insurable interest
• Multiple people: Split percentages among several beneficiaries
• Trusts: Revocable or irrevocable trusts for controlled distribution
• Charities: Non-profit organizations or religious institutions
• Your estate: Generally not recommended due to probate complications
• Businesses: For key person insurance or buy-sell agreements

Common Beneficiary Scenarios

Married with Children

The most common setup:

• Primary: Spouse (100%)
• Contingent: Children equally, per stirpes

This ensures your spouse has access to funds immediately while protecting children if both parents die simultaneously.

Married Without Children

• Primary: Spouse (100%)
• Contingent: Parents, siblings, or other family members

Single Parent

• Primary: A trust for the benefit of minor children
• Contingent: Guardian or other trusted adult

Never name minor children directly, more on this below.

Blended Family

• Primary: Current spouse (50%) and children from prior marriage (50%)
• Contingent: Varies based on family dynamics

Or consider a trust to ensure children are provided for while giving your spouse access to needed funds.

Business Partners

• Primary: Business partner or the business itself
• Contingent: Family members

This is common for buy-sell agreements where the death benefit funds a partner buyout.

Never Name Minor Children as Beneficiaries

This is one of the most important rules of beneficiary planning: never name minor children directly as beneficiaries. Here's why:

• Insurance companies cannot pay benefits to minors
• The court must appoint a guardian to manage the funds
• This process is expensive and time-consuming
• The guardian may not be who you would have chosen
• At age 18, the child receives the entire sum outright (often unwise)

Better Options for Minor Children

Trust: Create a trust that specifies how and when funds are distributed. The trustee manages money according to your instructions. This is the gold standard for providing for minor children.

UTMA/UGMA Custodial Account: Name an adult as custodian under the Uniform Transfers to Minors Act. Simpler than a trust but with less control, the child receives all funds at 18-21 depending on state law.

Name the guardian: Name the child's guardian as beneficiary with the understanding they'll use funds for the child. This relies on trust but avoids court involvement.

When to Update Your Beneficiaries

Life changes require beneficiary updates. Review and update after:

• Marriage: Add your spouse as primary beneficiary
• Divorce: Remove your ex-spouse (critical, they may still receive benefits if not updated)
• Birth of a child: Add children to contingent beneficiaries
• Death of a beneficiary: Name a replacement
• Blended family changes: Ensure appropriate allocation
• Annual review: Even without major changes, confirm everything is current

Avoiding Common Beneficiary Mistakes

These errors can cause serious problems:

Naming Your Estate

Naming your estate as beneficiary subjects the death benefit to probate, potentially creditor claims, and delays distribution by months or years. Always name specific individuals or trusts.

Forgetting to Update After Divorce

In most states, your ex-spouse will receive the death benefit if they're still named, even if your divorce decree says otherwise. The beneficiary designation on the policy controls, not your divorce agreement or will.

Not Naming Contingent Beneficiaries

If your primary beneficiary dies before you and no contingent is named, proceeds may go through probate. Always name backup beneficiaries.

Vague Descriptions

Don't use descriptions like "my children" or "my spouse." Name beneficiaries specifically with full legal names, dates of birth, and Social Security numbers when possible. This prevents disputes about who qualifies.

Unequal Distributions Without Explanation

If you're intentionally leaving unequal amounts to children, consider leaving a letter explaining your reasoning to prevent family conflict.

Learn about more common life insurance mistakes to avoid.

Revocable vs Irrevocable Beneficiaries

Most beneficiary designations are revocable, you can change them anytime. However, some situations call for irrevocable beneficiaries:

• Divorce settlements: Courts may require irrevocable designation to secure child support obligations
• Business agreements: Buy-sell agreements often specify irrevocable beneficiaries
• Estate planning: Irrevocable life insurance trusts (ILITs) use this structure for tax benefits

With an irrevocable beneficiary, you cannot change the designation without that beneficiary's written consent.

Special Considerations for Different Family Situations

Special Needs Dependents

If you have a dependent with disabilities who receives government benefits, naming them directly can disqualify them from Medicaid and SSI. Use a Special Needs Trust that provides for them without affecting benefits eligibility.

Estranged Family Members

You can exclude anyone from your beneficiary designation, including children. However, be explicit, if you die without naming any beneficiaries, state law may direct proceeds to family members you intended to exclude.

International Considerations

If beneficiaries live outside the US, there may be tax implications and practical challenges with benefit payment. Consult with an attorney familiar with international estate planning.

Working with Your Estate Plan

Life insurance beneficiary designations override your will. Even if your will says everything goes to your spouse, if your ex-spouse is named on your life insurance policy, they receive the death benefit.

Coordinate beneficiary designations with your overall estate plan:

• Ensure your will and beneficiary designations align
• Consider a pour-over will that directs assets to your trust
• Review all accounts with beneficiary designations (retirement accounts, bank accounts, etc.)
• Work with an estate planning attorney for complex situations

Documentation and Communication

Protect your family by:

• Keeping copies of beneficiary designation forms
• Informing your beneficiaries about the policy (they need to know it exists to claim it)
• Storing policy documents where your executor can find them
• Updating your beneficiaries in writing, verbal changes aren't valid

Take Action Now

Review your current beneficiary designations today. If you don't have life insurance yet, plan your beneficiary strategy before you buy, compare quotes from top insurers and get the coverage your loved ones deserve.

Understanding how much coverage you need is just as important as naming the right beneficiaries. Get both right, and you'll have complete peace of mind knowing your family is protected.