Naming a Beneficiary for Your Life Insurance Policy

Your choices will have important consequences down the road.

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If you buy life insurance for your family, or are offered a free or low-cost policy at work, you’ll be asked to name a beneficiary—someone who will receive any policy proceeds that are paid out at your death. When you’re asked to fill out the paperwork, you may not give your choice of beneficiary much thought, and just put down the name of your spouse or kids.

It’s worth taking a little time, however, to think about how you name your beneficiaries. It’s easier than you might imagine to inadvertently cause problems down the road. Here are some tips.

But whatever you do, name someone. If you don’t, the policy proceeds will be part of your estate after your death. That means that the money won’t get to your family as quickly as it could—and if you leave large debts, it might be used up to pay them.

In Community Property States, Don’t Forget Your Spouse

Most people name their spouses as insurance beneficiaries. But if you live in a community property state and want to name someone else, get your spouse’s consent, in writing. 

The reason is that if you buy a life insurance policy with community funds—your wages, for example—then it belongs to both you and your spouse. In community property states, most everything you or your spouse owns, with the exception of assets one of you receives by gift or inheritance, is community property. That means it belongs to both of you equally. (That’s an oversimplification of the rule, of course; for a detailed discussion, see “Separate and Community Property During Marriage: Who Owns What?”)

Community Property States


New Mexico








If You Name a Child as Beneficiary, Put an Adult in Charge

If you’re buying life insurance to provide for your young children if something unexpected happens to you, don’t simply name your children as beneficiaries. There must be an adult in charge of any money they become entitled to.

If you don't arrange for someone to manage the money, a court will have to appoint someone to do it. The process of getting someone appointed can be expensive and intrusive, and the money will probably be turned over to the child at age 18. You can avoid this scenario in one of two ways:

Set up a custodianship under the UTMA. Name an adult as “custodian” of the funds under a law called the Uniform Transfers to Minors Act (UTMA), which has been adopted by every state except South Carolina. Most insurance companies are familiar with this option. The custodian will manage the funds and use them for the child’s benefit until a certain age, 21 in most states.

Set up a trust. You can also set up a trust for the children, and designate someone as “trustee” to manage and spend the money for the child’s benefit. You would name the trust as the beneficiary of the life insurance policy.

Name Names

Always put down the full name of each person you want to be a beneficiary. Never designate a group, such as “my children,” as beneficiary.  That can cause confusion and conflict later—for example, did you mean to include stepchildren, adopted children, children born outside marriage, children who were adopted out of your family, and so on?

Don’t Jeopardize a Beneficiary’s Eligibility for Government Benefits

If you want to steer money to a beneficiary with special needs, be very careful. Anyone who receives more than a small cash gift will lose important government assistance—for example, Medicaid coverage that’s crucial for a beneficiary who will never have a job that offers health insurance. Under current law in most states, you cannot receive Supplemental Security Income or Medicaid if you have more than $2,000 in “countable” assets (not all assets are counted for purposes of eligibility).

You can, however, create what’s called  a special needs or supplemental trust for the person with a disability, and name the trust as beneficiary of your life insurance policy. A property drafted special needs trust will let the trustee (the person you choose to manage trust funds) use the proceeds for the beneficiary, without jeopardizing eligibility for benefits.

Always Name an Alternate Beneficiary, Too

It’s always possible that the person you name as a beneficiary could die before you do, or even at the same time. Even if that scenario is unlikely, it’s a good idea to name an alternate (also called contingent or secondary) beneficiary, who would receive the policy proceeds if your primary beneficiary has died.

When Your Life Changes, Update Your Policy

It’s more common than you might think to find someone listed as the beneficiary of a former spouse’s life insurance policy. And after the policyholder dies, there’s nothing anyone can do about it.

Update your beneficiary designations (pensions, retirement accounts, and payable-on-death bank accounts as well as insurance policies) whenever there’s a big life event: you get married, you divorce, or a child or grandchild joins the family.

Don’t Try to Use Your Will to Change a Beneficiary

If you want to name or change a life insurance beneficiary, go to the company and fill out the documents it requires. You can’t change a beneficiary in your will—the terms of your will have no effect on your agreement with the life insurance company.

Per Stirpes or Per Capita?

If you name more than one beneficiary—for example, you name your two children—then you may be asked to specify whether you want them to inherit “per stirpes” or “per capita.”

Say what? First of all, know that It won’t make a difference unless a beneficiary dies before you do and you don’t update your beneficiary designations.

It’s easiest to understand these terms by looking at an example. Let’s say you name your spouse as primary beneficiary and your two daughters as alternates. Both daughters have children of their own. Now let’s say that by the time you die, both your spouse and one of your daughters have died. Your daughter left three children.

If you chose per stirpes, your deceased daughter’s half of the proceeds would go to her children. In other words, they would stay in her branch of the family. (Stirpes is from the Latin word for root—think of a family tree.) But if you chose per capita (per head, in English), all the people entitled to inherit—her three children and your other daughter—would split the proceeds; each would get an equal share.

Make Sure Family Members Know About the Policy

Millions of dollars’ worth of life insurance proceeds go unclaimed every year, because surviving family members don’t know the policies exist. Tell your executor and the beneficiaries about the policies—and where to find the papers they’ll need.

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