Once you start a family, there’s an extent to which your life is no longer your own. You have obligations ranging from the banal (soccer practice) to the fundamental (earning enough money to support another human being; trying really hard not to die).
But your life insurance policy is your own. Although its purpose is to protect your family, and you won’t financially benefit from it yourself if the worst should happen, you get to choose how much coverage to apply for and for how long, and who should benefit from it. But you can’t change an irrevocable beneficiary.
What is a beneficiary?
A life insurance beneficiary is a person who will receive the payout from a policy if you were to die. The proceeds from the payout can be used to help pay for financial needs – those that come with death, such as funeral arrangements and other end-of-life expenses, or day-to-day bills like the mortgage and child care.
You can name two (or more) people as primary beneficiaries, outlining the percentage of the policy payout each would be given. You can also name a contingent beneficiary, who could receive the death benefit if something happened to the primary beneficiary. Think of a contingent beneficiary as your “alternate.” With most life insurance policies, you can change your beneficiary designation at any time.
For some, designating two primary beneficiaries — say, a spouse or partner and a parent — may make sense, especially if both could face financial hardship. For others, one primary life insurance beneficiary, with a contingent beneficiary named, makes the most sense. The latter is what we commonly see at Haven Life.
You can have more than one primary beneficiary and more than one contingent beneficiary; you simply need to designate what percentage of your life insurance proceeds you want to allocate to each of your primary beneficiaries. Haven Life, for example, permits up to 10 primary beneficiaries and 10 contingent beneficiaries. No matter how many primary beneficiaries you have, the total percentage allocated must equal 100%. How you divide that 100% is up to you, the policyholder.
What are irrevocable beneficiaries versus revocable beneficiaries?
An irrevocable beneficiary is someone named as a beneficiary of your life insurance policy who cannot be removed from it unless they agree. Ever. If, for example, your spouse is an irrevocable beneficiary and you divorce, your spouse is still entitled to remain on the policy, regardless of whether you want that. Furthermore, you are not permitted to cancel the policy unless they agree.
Put another way, if you and your spouse don’t stay married “’til death us do part,” you’ll still be joined in life insurance until after your death if they are an irrevocable beneficiary. In some states, irrevocable beneficiaries have the right to approve or deny changes to a policy (such as the amount of coverage), and in others, they only have power over their own stake in the policy. But wherever you live, irrevocable really does mean forever.
You can designate revocable beneficiaries, who you can remove when you want (when a child has grown up and no longer needs the safety net your policy provides, for example), so why would you give up that option? As is often the case with life insurance, one reason is peace of mind. If you have kids and your spouse is the primary caregiver, perhaps they want the security of knowing that even if you divorce, they’ll still be protected financially if you pass away. Life insurance policies are often part of pre-nuptial agreements, including the discussion of irrevocable beneficiaries.
It’s more common to name revocable beneficiaries, and those are either primary beneficiaries or contingent beneficiaries.
How often should I review my beneficiaries?
People move. Relationships change. Life … happens. It’s a good idea to review your beneficiaries at least once a year to make sure your beneficiary designation is up to date. Remember, you can always change, add or remove revocable beneficiaries, but not irrevocable ones.
Whether your beneficiaries are revocable, irrevocable, or a mix of the two, it’s important to choose carefully, and (assuming you have at least some revocable beneficiaries) to review your beneficiaries from time to time to make sure your policy is doing what you need. A life insurance policy allows you to financially protect the people you love. Choosing who your beneficiaries are and how they’re designated is an important part of that process.
Michael Davis is a freelance writer and editor who has covered everything from fashion and music to parenting, work, and finance. He has been a chef, restaurateur and record label owner. Opinions are his own.
Haven Life Insurance Agency offers this as educational information only. The information provided is not written or intended as specific legal advice, which Haven Life does not provide. Individuals are encouraged to seek advice from their own legal counsel.