Welcome to the Ultimate Guide to life insurance beneficiaries. Everyone knows the definition of beneficiary. The recipient of an advantage from something. Here we will focus on life insurance beneficiaries in detail. We already touched this topic briefly in our article on personal life insurance. Let’s explore this on a more detail here.
Types of Life Insurance Beneficiaries
There are two basic types of life insurance beneficiaries and this is stated right in your application. The two types are revocable and irrevocable. Revocable means they can be changed by you at any time without their prior knowledge. In the second case, it is not possible to remove them without their knowledge. This then becomes a process.
Another type of a life insurance beneficiary is a contingent beneficiary. This is a second in line beneficiary. If you designate your wife/husband as a beneficiary, and you both pass away in an accident, then the money will still be paid out, but it would become part of your estate. By designating a contingent beneficiary, you have full control over the succession of the death benefit. The number of contingent beneficiaries is not limited, but realistically, you do not need more than one or two in the queue after your primary beneficiary.
Why Beneficiaries Change over Time?
Well, it all comes down to when you purchase your life. Most people don’t worry about life insurance until they are in their forties. At this time you are married, have kids, no savings and you are looking to create an instant estate. Why? You are not planning on dying, right? Yeah, well but it’s because of that what if! At this point, you more than likely know your beneficiaries and have no reason to change them in the near future.
But, let’s say you are smart. Let’s say you are getting life insurance while in your twenties. Maybe you are still finishing school. You don’t have a spouse and your partner that you’ve known for two weeks now is not really your primary candidate to be your life insurance beneficiary. At this point you will more than likely designate your parents. Common sense. Who else, right?
Fact of life is that most kids live longer than their parents. And unless you’re getting a short term life policy, chances are your policy will be in force longer than your parents will be alive. On top of that, you hit your thirties, start a family, and now the big decision comes. Who should be your life insurance beneficiary? There are a lot of moral and legal questions involved here.
1 – Do you have to tell your spouse about your policy?
No! Simple as that. There is no law or regulation forcing you to disclose anything about your policy. It’s all at your will. There is no public register of life insurance policies. And no life insurance company will ever disclose any information about your policy without your prior authorization. Meaning that unless you direct them in advance, they will not even mention your name if an inquiry comes to them. Life insurance providers adhere to highest confidentiality standards.
2 – Does anyone need to know who the beneficiaries are?
Here we go back to the two basic types of beneficiaries. You can designate someone to be the irrevocable life insurance beneficiary and don’t need to let them know. However, if you want to replace them, then this will become a process. If you designated only revocable beneficiaries, then you can change them at will, with no strings attached.
Now, let’s say you appointed your spouse to be a revocable beneficiary and some years later you get divorced. Can he/she call the company and ask them if she still is the beneficiary? NO! Of course she can try to call, but the provider will only talk to policy owner, you.
3 – What happens in a divorce case?
This is a bit more complicated. If you only have a term policy, i.e., no cash value, it is simple. You designate a beneficiary and everything follows the principle of revocable/irrevocable. However, in case of whole life policies, i.e. cash building policies, the divorce can have a deep impact on the policy. If your spouse knows the policy, then it becomes a part of the legal suit. There are many ways this lawsuit go. You may even have to settle for the cash value or just cancel the policy, change beneficiaries, take a policy loan and so on. In general, the less people know about it, the better.
4 – How many beneficiaries can you put on a policy?
Infinite amount. Besides the ridiculous extremity such as 100,000 beneficiaries on a $100,000 where everyone gets a $1, the number of beneficiaries is up to you. And so are the percentages. So, let’s say you put down 5 beneficiaries, then each can either get equal share of 20%, but you can also select giving 10% to 4 and 60% to 1 of them. And each of those can also have a contingent beneficiary.
We hope this article answers all of your questions relative to life insurance beneficiaries. If there is something else you’d like to know, then do let us know in the comments below. Feel free to email us to discuss any personal situation or circumstances you may have and are not sure about.