Beneficiaries of Life Insurance Policies

Instructor: LeRon Haire
In this lesson, we will address the different types of beneficiaries including primary, contingent, revocable, irrevocable, and minor beneficiaries. The lesson will also include benefits and eligibility requirements for each, along with a definition of the common disaster clause.

Dying to Know About Beneficiaries

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Have you ever taken the time to visit the DMV for a license renewal or registration? If you have, then one of the first things that you may have recognized is that you must take a number. This number helps to determine who is next in line to be helped. This sequence of events is similar to a primary beneficiary on an insurance policy.

Primary Beneficiaries

A primary beneficiary can be described as the first person listed to receive benefits from a will or trust when someone passes away. It is important that a policyholder distinguishes a primary beneficiary because without one, there may be mass confusion as to who gets what once a policyholder has deceased.

The main benefit for primary beneficiaries is the fact that they are first in line to receive anything left over in a will or trust. The only eligibility requirement that a primary beneficiary must satisfy in order to be eligible is to have the policyholder name that person as primary beneficiary before they pass away.

Contingent Beneficiaries

A contingent beneficiary can be defined as the person that is second in line and will therefore receive any benefits for a policyholder's death only if the primary beneficiary is deceased. The contingent beneficiary will also be the first to receive benefits if the primary beneficiary is unable to be found or turns down any benefits or inheritance that is left to them by a will or trust.

One of the benefits of being named as a contingent beneficiary is that it helps to deter unnecessary legal trouble and costs related to probate and to the estate. A contingent beneficiary can be a person, an estate, or even an organization. Since they do not have the legal backing to make decisions on an estate, minor children are not qualified to be contingent beneficiaries (more on this below).

The eligibility requirements for contingent beneficiaries is rather simple: In most instances, the primary beneficiary must be deceased in order for the contingent beneficiary to receive the funds from a will or trust. As previously mentioned, there are a few conditions in which this may not be the case and they are as follows:

  • The primary beneficiary refuses an inheritance
  • The primary beneficiary is unable to be located
  • The primary beneficiary kills the policyholder in an effort to receive the death benefits

Revocable Beneficiaries

Although the primary and contingent beneficiaries are the most common, they are not the only types of beneficiaries that there are. A revocable beneficiary is described as one who holds the authority to change beneficiary information at any time without the consent of any beneficiaries. For example, let's say that Louis is the policyholder and he has Jeff listed as the primary beneficiary. At any time, Louis can change the primary beneficiary and without having to tell Jeff. The obvious benefit of a revocable policy is the fact that the owner can make changes as needed without consulting anyone else.

The only eligibility requirement for revocable beneficiaries is to simply own an insurance policy.

Irrevocable Beneficiaries

As a parallel, irrevocable beneficiaries are policies that are unable to be changed without the approval of the person listed at the irrevocable beneficiary. An irrevocable beneficiary is very beneficial in situations dealing in divorce settlements, when the courts may recommend that one spouse be named irrevocable as a way to secure their financial interest in the event that the other spouse passes away.

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