What is a Life Insurance Beneficiary?

Life insurance can provide financial security for your family after you pass away by paying a death benefit. The person or people who receive this benefit are life insurance beneficiaries. A policy can support estate planning and long-term decisions that will impact your beneficiaries, like creating a trust.¹ Aflac offers term life and whole life insurance policies that can provide you and your beneficiaries with peace of mind. Read on to learn more about how life insurance beneficiaries work.

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Key Takeaways

A life insurance beneficiary is the person you choose to receive a policy’s death benefit after you pass away.²
While you can usually change a life insurance beneficiary, it’s important to have a plan for both primary and contingent beneficiaries.
Aflac offers life insurance policies for individuals and families that can provide added financial protection to your chosen beneficiaries.

What is a life insurance beneficiary?

A life insurance beneficiary is the person or entity the policyholder names to receive the death benefit.² Once the life insurance policyholder passes, the death benefit must be distributed to the beneficiary. You can choose to name one specific person, a trust, or multiple people as contingent beneficiaries on your life insurance policy. Some common beneficiaries for life insurance plans are spouses, family members, business colleagues, charities, and a trust.

Types of life insurance beneficiaries

There are two main types of life insurance beneficiaries:

Primary beneficiary: A primary beneficiary is the person or entity who is first in line to receive the death benefit payout after your passing. You can name more than one primary beneficiary.

Contingent beneficiary: A contingent beneficiary is a backup beneficiary who will receive the death benefit payout if the primary beneficiary passes away or can’t be found. You can also name multiple contingent beneficiaries.

Who should I name as a life insurance beneficiary?

There are no specific rules about who you can or should name as your life insurance beneficiary. Just remember that a beneficiary will receive the policy’s death benefit, so it should be someone who you want to help financially after you’re gone.

Many people choose a spouse as a beneficiary because the benefit can help cover mortgage payments, everyday bills, or provide support for a child’s upbringing and education. Regardless of who you choose, a life insurance policy is a legally binding contract, so it’s important to choose wisely.

Can I change my life insurance beneficiary?

There are a few life insurance beneficiary rules that must be considered. Most notably, the life insurance plan is a contract between the policyholder and the insurance company. This means that only the policyholder can change the beneficiary on the life insurance policy. However, this is a decision that can be made with a spouse.

It can be a good idea to name a secondary beneficiary in case plans change. Spelling their full names correctly is very important when designating a beneficiary. Children under the age of 18 are not able to receive the death benefit directly, so this must be factored into your plan.¹ If you go through a major life event, like the loss of a loved one or a divorce, make sure that your life insurance plan is up to date as soon as possible.

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What happens if I don’t name a life insurance beneficiary?

If you don’t designate beneficiaries, it will be more difficult for your loved ones to receive the death benefit payout after your passing. The payout will either be paid to your estate or held in probate. If your loved ones try to access these funds, it may take years to do so. Therefore, it’s important to name your beneficiaries when you get a life insurance policy.

Life Insurance Beneficiary Payout Options

There are a few different ways a life insurance policy can be paid out to a beneficiary, including the following:

Lump Sum

A lump sum payment allows the death benefit to be paid out in one large sum, rather than in timed installments. This is the most common payout method for most life insurance policies.¹

Installments

A death benefit can also be paid out in scheduled instalments. This allows the policy owner to select a pre-determined, guaranteed benefit amount to be paid out regularly mimicking a typical stream of income for the life insurance beneficiary.¹

Retained Asset Account

A retained asset account is a great option if you’re looking to write checks against the balance of your death benefit. This works well for beneficiaries of larger plans and prompts the insurance company to act like a bank. In this instance, the beneficiary may still be able to collect the interest on the death benefit.¹

Get a quote for life insurance

Designating life insurance beneficiaries can help ensure your loved ones receive the financial security they need in case of your passing. Aflac offers term life and whole life insurance policies with reasonable premiums and extensive coverage that can help make a big difference in your financial planning. You can also take the coverage with you wherever you go, even if you change jobs or retire in a new city. Start chatting with an agent to learn more about our policies and get a quote today.

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