Guide to Beneficiaries

A beneficiary is someone listed on a life insurance policy to get the proceeds if the insured individual were to pass away. The proceeds from life insurance typically come as a lump sum payment known as a death benefit. The beneficiary you choose on your life insurance is very, very important. Even if you put someone else on your will, trust, or another document, the beneficiaries you list on your life insurance are final. Nothing supersedes the choice you make on your life insurance.

This is most important in the event of a divorce or a similar major change in life circumstances. In many cases, someone with life insurance will choose their spouse as the recipient of life insurance. If you get a divorce and don’t update your life insurance, your ex-spouse could wind up getting your life insurance proceeds!

Updating your beneficiaries is usually quick and easy with a simple form. But forgetting to do so could cost your new spouse, your children, or someone else that you would rather get your life insurance in a worst-case scenario where you’re no longer around.

What is a contingent beneficiary?

Life insurance policies often last for decades. If the person you pick as a beneficiary passes away and can’t get the proceeds, the contingent beneficiary is the runner up to get the death benefit from your life insurance.

Most life insurance beneficiary forms allow you to choose one or more primary beneficiaries and one or more contingent beneficiaries as a backup. There are many situations where a contingent beneficiary may be used, so it’s important to put thought into that as well.

For example, if your beneficiary is your spouse and were to end up in an unfortunate accident together, who would get your life insurance proceeds? It might be your children, parents, or even a favorite charitable organization. But if you don’t pick, you don’t get a say in who gets the money from your life insurance.

Beneficiary Designation

Life insurance beneficiaries are usually revocable. That means you have the ability to change or update your beneficiaries at any time. If you want to remove someone at any time for any reason, that right is yours as a life insurance policyholder. However, there is a way to set up your policy where you can’t easily change the beneficiary.

When your life insurance beneficiaries are designed as irrevocable, you may need their permission to remove them and add a new beneficiary. Irrevocable beneficiaries may not be enforced in all states. If you want to change your life insurance beneficiaries and are having serious trouble, it may be wise to contact an insurance attorney to help you sort it out.

This is why it may be a good idea to always set your life insurance beneficiaries as revocable if you have the choice. While you may have the best of inventions today, no one knows what will happen in ten, twenty, or thirty years. Revocable beneficiaries are the most flexible and give you the most options.

How to find out if you are listed as a beneficiary?

While it’s much better to have your loved ones around, being listed as a life insurance beneficiary is a potentially huge gift. If the insured person passes away, you get the proceeds. But what if you are a beneficiary and don’t know it?

This unfortunate situation happens far too often. People often don’t plan on dying before they reach old age, so they might list someone on a life insurance policy and never tell them. If you think you may have a life insurance benefit coming your way, but are not sure, you have a few steps to take to confirm your suspicion.

• Ask: The easiest way to find out if you are a life insurance beneficiary is to ask while the insured person is still alive. If you have aging parents, grandparents, aunts, uncles, or other loved ones who may have listed you, ask them about it. If they have listed other family members and have not told them yet, encourage them to do so.
• Review important financial papers: Going through a drawer of important papers could lead you to a copy of a policy, mail from an insurance company, or other clues about where someone had life insurance.
• Look at checkbooks and bank statements: If someone had been paying life insurance every month, quarter, or year, there’s likely a paper trail. Look at checkbook registers, bank statements, and credit card statements to find traces of recurring life insurance payments.
• Find interest income and expenses on tax forms: If they had permanent life insurance like whole life or universal life, your family member may have reported an investment gain or loss on their taxes. Look at the last few years of tax forms to find anything from a major insurance provider. That could be life insurance.
• Check the mail: If life insurance stops getting paid, or even if it is paid on time as agreed, there could be mail from the insurer from time to time. Check the mailbox and recent mail to find anything that could be from a life insurance company.
• Contact potential insurers: The last four steps may have given you a list of potential insurers. Put on your detective hat and start calling them and asking around. It could just take a phone call to get the information you need and get a copy of claim forms to get paid.
• Search with the NAIC policy locator: The National Association of Insurance Commissioners, or NAIC, offers a search service that will check with participating companies to find if a specific person is a beneficiary of any policies or able to get information about a policy.
• Contact most recent employer: Many people get group life insurance from an employer. If your loved one died while employed, consider contacting that employer’s human resources department to find out if there are any existing policies you should know about or if you should reach out to a specific insurance company for more information.
• Search for unclaimed funds: Most states have an unclaimed funds search tool online. Your state insurance commissioner’s office should be able to point you the right way if you have trouble finding what you need.

If you are next-of-kin to a beneficiary, you could be entitled to the benefit as well. Again, it could be a good idea to contact a lawyer or insurance professional to represent you if you’re having trouble navigating the system on your own.

Selling a Life Insurance Policy without a Beneficiary

With no beneficiary, life insurance is paid out to the estate of the deceased. That means lenders like mortgage companies and credit card companies may have a claim on the proceeds before they make it to the intended beneficiaries, among other complications.

This is another reason the best way to set up your life insurance is to pick the beneficiary or beneficiaries you want. If you do, you and your family are in full control of your life insurance. That’s exactly how it should be.