What Is a Beneficiary? Definition, Types and How to Choose

A beneficiary is a person or entity that receives a “benefit,” which is money or property from a deceased person’s estate ^[0]

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1. Primary beneficiaries

A primary beneficiary is your first choice: the first person who will receive the death benefit from your life insurance person or the main recipient of the assets in your will. Primary beneficiaries tend to be someone who would suffer financially in the event of your death, such as a spouse.

2. Contingent beneficiaries

A contingent beneficiary — sometimes called an alternate or secondary beneficiary — will receive your assets or account benefits if your primary beneficiary is deceased or cannot be located. You can name multiple contingent beneficiaries and specify what they’ll each receive.

3. Revocable beneficiaries

A revocable beneficiary can be changed without the beneficiary’s permission if the policy owner (the benefactor) is still alive.

4. Irrevocable beneficiaries

An irrevocable beneficiary can’t be changed without written permission from the beneficiary. If there are multiple, all parties involved need to consent to any changes. Irrevocable beneficiaries may be named as part of a divorce settlement or other special circumstance.

In most cases, a beneficiary designation on a life insurance policy overrides a will. Therefore, if you change your will but don’t update your life insurance policy and other beneficiary designation to match, the assets will still go to the original beneficiary.

For example, if you name your former spouse as a beneficiary on your life insurance policy but forget to change it — even if you write in your will that everything you own should go to your children — your life insurance policy will still go to your ex.

Here are a few options.

1. You can choose one beneficiary or split your assets among multiple beneficiaries. Most insurance policies will require you to select a primary and a secondary (often called “contingent”) beneficiary. Keep in mind that there may be tax consequences for beneficiaries depending on the state they live in.

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2. Your state of residence or insurance provider may restrict who you can name as a beneficiary for life insurance. In some states, you may be required to list your spouse as your primary beneficiary and allocate at least 50 percent of the benefit to them; in some, you’ll need your spouse’s written permission to name someone else.

3. You can designate a trust as a beneficiary. A trust is a separate legal entity that gives you greater control over the distribution of your assets and can help you navigate tricky estate situations, such as naming a minor or dependent as the beneficiary.

4. You can name a charity or nonprofit organization as a beneficiary to receive all or part of your assets.

» Deciding on a beneficiary? Here’s what else to consider

Most accounts, such as life insurance and retirement accounts, prompt you to name a beneficiary when you open the account, but you can fill out a form online or in person to designate or change your beneficiaries at any time. Contact your insurance provider or financial institution directly to request the necessary forms.

Providing as much information as possible can help avoid future confusion or legal conflict. Include your beneficiaries’ Social Security numbers and full names, especially if you have a complicated family situation, such as an ex-spouse or adopted children.

A child under 18 can be named as a beneficiary, but there may be some legal limitations. If the child is still a minor when you die, the assets may go to their legal guardian until they come of age. In some cases, this can make the payout process more complicated or delay the child’s access.

It may be helpful to set up a trust, which can serve as the beneficiary in the child’s place. The terms you set in the trust can outline how your assets will be distributed over time. For example, you can require that your child turn 25, get married or reach other milestones before receiving certain assets.

Generally, you can change your beneficiaries at any time. It’s good to review your will after a significant life event, like a marriage, divorce, death of a loved one or addition of children or grandchildren.

Here’s how to make changes, depending on the account:

• On a life insurance policy, you can change your beneficiaries by contacting your insurance provider. You may have to fill out a form to confirm your change. You will need your beneficiary’s consent to change their status if they were designated as irrevocable.

• With a financial account like a retirement or investment account, contact the financial institution directly. If you receive benefits through your employer, you’ll likely have the opportunity to revisit your policy choices during the annual enrollment period.

• In your will, you can make a beneficiary change by adding a codicil, which is a legal document that modifies your will. Laws vary depending on your state, but you’ll generally need two witnesses to certify a codicil. If you’re making major changes, it’s best to create a new will and destroy the old one. 

If you don’t name a beneficiary, the benefit payment from your insurance might be delayed until the company or state court determines where it should go. Most life insurance policies have a default payment order and may end up paying out to your estate.

If this happens, your loved ones may have to go through a more difficult probate, which is the legal process of distributing your property after you die. This process can be lengthy and costly, so it’s best to avoid it by making your wishes as straightforward as possible.