Changing Life Insurance Beneficiary: A Simple Step-By-Step Guide

Changing the beneficiary of your life insurance policy is a straightforward process. You can change your beneficiary at any time, for any reason, by contacting your insurance company. This can usually be done by filling out a form, either online or in writing. While there is no mandatory waiting period or limitation, there are a few things to keep in mind when making changes to your policy.

Who can be a life insurance beneficiary?

When you purchase a life insurance policy, you are given the option to designate one or multiple beneficiaries to receive a death benefit in the event of your passing. There are almost no rules restricting who you can pick as your beneficiary. You can name anyone you like, from a partner or spouse, family member, or friend, to a charity, business, or trust. The only real restriction is for minors, as you would need to designate a trust or legal guardian as the beneficiary to provide them with the death benefit.

While you can name anyone as a beneficiary, it is important to notify them and provide them with a copy of your life insurance policy. This ensures that they are aware of their role and can file a claim when the time comes. It is also crucial to be specific when designating a beneficiary, including their full name, Social Security number, relationship to you, date of birth, and address. This helps to prevent any disputes or confusion and enables the insurer to locate your beneficiaries quickly.

In addition to individual people, charities, trusts, and estates can also be beneficiaries of a life insurance policy. You can have multiple beneficiaries and allocate a percentage of the payout to each. For example, you could name your spouse and child as beneficiaries, with 50% of the payout going to each. It is important to note that the percentages must add up to 100% and that naming minors as beneficiaries can create legal complications.

When choosing a beneficiary, it is recommended to consider the people who rely on you financially and would need support in covering ongoing bills or expenses in your absence. Additionally, think about who you would like to leave money to, such as a charity or a trust for your children. By carefully selecting your beneficiaries and keeping your list up to date, you can ensure that your wishes are carried out and that your loved ones receive the financial support they need.

How to change your beneficiary

Changing the beneficiary on your life insurance policy is a straightforward process. You can change your beneficiary at any time, for any reason—whether that's the birth of a child, the death of a named beneficiary, a divorce, or a personal conflict. The only person who can make this change is the policyholder, and they can do so by contacting their insurance company.

To change your beneficiary, simply reach out to your insurance company. You can do this by calling your agent or insurance company and telling them you would like to change the beneficiary. They will then provide you with the correct forms to fill out, either online or in writing. You will need to provide the full names and Social Security numbers of your beneficiaries.

It's important to note that there are two types of beneficiaries: revocable and irrevocable. A revocable beneficiary can be changed at any time, but an irrevocable beneficiary cannot be changed without their consent. Most beneficiaries are revocable, but be sure to check your policy to confirm.

In addition, you can have multiple beneficiaries, which can be assigned in two ways: per stirpes or per capita. Per stirpes means that the proceeds will be divided equally among the beneficiaries and/or the surviving children of the beneficiaries. Per capita means that the proceeds are divided equally among all beneficiary survivors. It is recommended that you designate proceeds to be distributed as a percentage rather than a dollar amount.

Finally, remember to notify your beneficiaries and provide them with a copy of your life insurance policy. This will ensure that they are aware of their status as a beneficiary and can file a claim when the time comes.

Revocable vs. irrevocable beneficiaries

When choosing a life insurance beneficiary, you can select either a revocable or an irrevocable beneficiary. A beneficiary is the person or entity that will receive your policy's death benefit. While you can name anyone as a beneficiary, it's important to notify them and provide them with a copy of your policy.

A revocable beneficiary is someone you choose that can be changed at any time without their permission. The policy owner is in total control and can modify or cancel the policy without the consent of the currently named beneficiaries.

An irrevocable beneficiary, on the other hand, cannot be changed without their written permission. They must consent to any changes in the policy, including removing them as a beneficiary. This gives them a more substantial right to your death benefit.

By default, beneficiaries are usually revocable. However, there are specific reasons why you may want to make someone an irrevocable beneficiary. For example, in cases of divorce, second marriages, and blended families, naming irrevocable beneficiaries can ensure that the death benefit goes to your biological children instead of a spouse or step-children.

It's important to review your beneficiaries regularly and after major life events such as a new home purchase, marriage, divorce, birth of a child, or the death of a family member.

Primary vs. contingent beneficiaries

When setting up a life insurance policy, it's essential to understand the difference between primary and contingent beneficiaries to ensure your assets are handled according to your wishes.

Primary Beneficiaries

A primary beneficiary is the first person or entity in line to receive the assets or benefits from your life insurance policy, retirement account, or estate upon your death. This individual or group has the primary claim to the inheritance and receives the proceeds directly, bypassing the need for probate, provided all conditions are met. You can name more than one primary beneficiary and specify how the assets should be divided.

Contingent Beneficiaries

A contingent beneficiary, also known as a secondary beneficiary, is the second in line to inherit the asset. They are essentially a backup to the primary beneficiaries and will only receive the assets if the primary beneficiary has predeceased you or cannot be located. You can designate multiple levels of contingent beneficiaries to ensure a clear line of succession.

Why Both Designations Are Important

Naming both primary and contingent beneficiaries is crucial for comprehensive estate planning. Here are some key reasons why:

• Avoid Probate: Properly designated beneficiaries can help avoid the lengthy and costly probate process, which can delay the distribution of the inheritance.
• Ensure Wishes Are Fulfilled: Contingent beneficiaries ensure that your assets are distributed according to your wishes, even if the primary beneficiaries cannot receive them.
• Clarity and Security: Clear designations prevent disputes among potential heirs and provide peace of mind, knowing that your loved ones are taken care of.

How to Designate Beneficiaries

When setting up your beneficiaries, follow these steps:

• Identify Beneficiaries: Determine who you want to designate as your primary and contingent beneficiaries.
• Specify Details: Clearly state the names, relationships, and percentages or specific amounts each beneficiary should receive.
• Review Regularly: Life changes, such as marriages, births, deaths, or divorces, may require updates to your beneficiary designations.
• Consult Documentation: Ensure your designations align with the specific rules of the financial institution or policy.

Per stirpes vs. per capita distribution

Changing the beneficiary on a life insurance policy is a straightforward process. The policyholder can change the beneficiary at any time by contacting their insurance company. The only way an irrevocable beneficiary can be removed from a policy is for that beneficiary to agree to forfeit their rights to any money.

Now, let's delve into the details of "per stirpes vs. per capita distribution":

Per stirpes and per capita are terms used to describe how life insurance proceeds, also known as the death benefit, are distributed among beneficiaries. Understanding these terms is crucial when planning your estate. Here's a comprehensive guide to help you navigate the differences between per stirpes and per capita distribution:

Per Capita Distribution:

• "Per capita" is derived from the Latin term "by head."
• In a per capita distribution, the death benefit is divided equally among all living beneficiaries.
• This is the default option when designating beneficiaries in a life insurance policy. If the policyholder does not specify individual percentages for each beneficiary, the benefit will be distributed evenly.
• Per capita distribution is recommended when the policyholder names a single beneficiary, such as a spouse or a trust for children.
• It is also suitable for those who want to designate their spouse, a trust, or a legal guardian as a beneficiary.

Per Stirpes Distribution:

• "Per stirpes" translates to "by roots" or "by branch" in Latin.
• In a per stirpes distribution, the death benefit is passed on to the beneficiaries' heirs if they die before the policyholder.
• This type of distribution ensures that the benefit supports younger generations of the family, even if one of the original beneficiaries is unable to accept the payout.
• Per stirpes distribution is generally chosen when the policyholder wants to leave money to grandchildren or ensure that the death benefit goes to the beneficiaries' heirs.
• It is also recommended when multiple primary beneficiaries are named or when the death of one beneficiary would impact the financial well-being of the others.

It's important to note that the distribution method chosen should align with the policyholder's wishes and family situation. Consulting a financial advisor can provide personalized guidance based on individual circumstances.

Frequently asked questions