Naming beneficiaries is part of buying a life insurance policy. That means you should figure out who will receive the money from your policy before you sign on the dotted line.
What is a life insurance beneficiary?
Your life insurance beneficiary receives your policy’s payout — known as the death benefit — if you die while the policy is active.
If you’re feeling stressed about deciding who gets the payout, following a few rules may help you feel more confident about your decision.
Life insurance beneficiary rules you should know
In addition to these rules, some state laws or insurer requirements can influence or even restrict your choices. Before buying a policy, read the fine print to understand how your life insurance company handles beneficiaries.
Rule #1: Just about anyone can be your beneficiary
Almost anyone can be a life insurance beneficiary, including people, organizations and trusts.
Most insurers will ask that you list the relationship to the beneficiary on the form, but you won't be asked to prove the beneficiary has a financial interest in your life.
Here are some common choices for life insurance beneficiaries:
👤 A person, like your spouse
A common approach is to name your spouse or partner as a beneficiary. Keep in mind some states that have community property laws may require you to assign a spouse as your life insurance beneficiary.
👤👤👤 Multiple people, like your children
When you specify multiple people should receive your life insurance payout, you’ll be asked what percentage goes to each person. You don’t need to divide the payout evenly.
📑 A trust
Naming a trust as your life insurance beneficiary is helpful if you’d like your payout to go to a child who is still a minor.
🏛️ Your estate
If you choose to name your estate as the beneficiary, just know the life insurance proceeds may be held up in probate.
🤝 A charitable organization
You can choose a charity to receive a part or all of your life insurance death benefit.
💼 A legal entity, like your business
Providing a payout for a business could help a partner retain ownership upon your death.
How to choose more than one beneficiary
You don’t have to choose just one person to receive your life insurance money. If you name multiple beneficiaries, you can specify how much of the payout each receives. For example, let’s say you name your spouse, child and a local charity as primary beneficiaries. You could allocate 50% to your spouse, 30% to your child and 20% to the charity.
No matter how you divide a life insurance payout, the percentages must add up to 100%. If you don’t list the percentages, the insurer may give equal shares to each beneficiary.
Note that some insurers limit the number of beneficiaries, so you may have to make some hard choices.
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Rule #2: You probably don’t want to name your estate as a beneficiary
While there might be some exceptions to this rule, you generally don’t want to leave your life insurance proceeds to your estate. Why?
When your estate is the beneficiary, your death benefit becomes part of probate proceedings. This means the money could get held up for months and might even be used to pay off creditors as part of settling your estate.
Life insurance is specifically designed to avoid this delay. Your insurer can release your death benefit to your beneficiaries as part of the claims process in a few days or weeks.
Nerdy Perspective
After my father-in-law passed away, my mother-in-law updated the beneficiaries on their joint life insurance policy. She thought because she had a will, she was required to name her estate as the beneficiary. I explained this wasn’t the case. Instead, my mother-in-law decided to split the life insurance proceeds between her three children so they could pay for any final expenses when she dies.
Rule #3: Choose a beneficiary that relies on you financially or will pay final expenses
Start by asking yourself why you have life insurance in the first place:
- Who relies on you financially and would need help paying bills if you die?
- Who would need financial support to cover the costs of your death, such as funeral expenses?
- Who would you like to leave money to, regardless of whether they rely on you, such as a charity or a trust for your children?
It’s a good idea to focus on people who would face financial burden if you were to die unexpectedly. In most cases, you can update beneficiaries as many times as you like.
Minor children can’t be direct beneficiaries of life insurance
Naming your children as life insurance beneficiaries might seem like a sensible decision. But if you die while they’re still minors, they won’t directly get the payout.
These are your options:
Appoint a guardian. Many states allow legal guardians to receive payouts on behalf of minors. You can appoint a legal guardian prior to your death, or the guardian can petition for rights after you die. In either case, the state must grant the guardian legal rights to manage the child’s finances. Appointing a guardian can be a lengthy and expensive process, so consult with a lawyer.
Establish a trust. Trusts can be effective solutions for leaving money to children. You can set up a life insurance trust for your children and have the trustee oversee the funds and distribute the money according to your wishes. However, there are costs involved, and the trust must be valid and active at the time of your death.
Rule #4: Your spouse might need to be a beneficiary in some situations
If you live in a community property state and use money earned during your marriage to pay for your policy, your spouse may be entitled to some of the death benefit. To waive this right, your spouse must give written consent to the named beneficiary before you die.
States with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Did you know...
Five other states — Alaska, Florida, Kentucky, South Dakota and Tennessee — have elective community property laws. This means married couples can choose to have equal ownership of joint property. If you choose to use community property rules, your spouse must give consent to your policy's life insurance beneficiaries.
Life insurance beneficiary rules for divorce
As part of a divorce decree, you may be required to have a life insurance policy that names your ex-spouse as a beneficiary. It’s more common for courts to require this approach if minors are involved so life insurance can provide future child support.
Rule #5: Not naming or updating your life insurance beneficiary can cause delays
If you don’t name a beneficiary, the insurer typically issues the death benefit to your estate. This delays your payout because the money gets held up in probate as part of the court proceedings involved in settling an estate.
In some cases where there is no beneficiary, insurers distribute the death benefit according to a specific order. The default approach is to give the payout to the surviving spouse. If there is no surviving spouse, an insurer might pay any surviving children in equal shares.
Update your beneficiary after any significant life event
It’s important to reassess your life insurance beneficiaries after major life changes so the right people are covered. Here are some situations that should prompt you to review your beneficiaries:
- You get married and want to add your new spouse as a beneficiary.
- You get divorced and want to remove your ex-spouse from the policy and name a child, trust or close family member instead.
- You have children and want to add them to your list of beneficiaries.
- Your kids no longer rely on you financially and you want to adjust their percentages or assign a spouse instead.
- Your beneficiary dies or turns 18 and you want to change or edit your choice.
Encourage your beneficiaries to learn how to make a life insurance claim so they're better prepared if you die. Not all states require insurers to notify beneficiaries when there’s a death. That means they might need to contact the insurance company directly.
Types of life insurance beneficiaries
The terms insurers use on life insurance forms can be confusing. Here are the terms you'll see referring to beneficiaries and what each means.
👤👤👤 First in line and second in line: Primary vs. contingent beneficiary
Primary life insurance beneficiaries are the first in line to receive the life insurance death benefit if you die.
Contingent life insurance beneficiaries are sometimes called secondary beneficiaries. They receive the payout if the primary beneficiary dies before you do.
✏️ Fixed or flexible: Irrevocable vs. revocable beneficiaries
You cannot change an irrevocable life insurance beneficiary without the beneficiary’s approval. For this reason, irrevocable beneficiaries aren't common.
However, they can be useful if you want to make sure the death benefit reaches a specific person, such as your child. Irrevocable beneficiaries are sometimes used in a divorce agreement. This can ensure a former spouse isn't removed from the policy without consent. They’re also helpful in business situations, such as to guarantee repayment of a loan.
In contrast, a revocable life insurance beneficiary is flexible. You can change, update, add or remove a revocable beneficiary at any time to meet your current needs. This is a more popular option.
How to change your life insurance beneficiary
You can typically change, add or remove revocable life insurance beneficiaries at any time. The methods to do so vary among insurers. Some companies may ask for a change of beneficiary form signed by a witness, while others allow you to update your beneficiary online.
Step 1: Confirm who owns the policy.
Keep in mind that in order to update the beneficiary, you’ll need to be the owner of the policy. If the life insurance is through your employer, contact the benefits coordinator to find out how to update your beneficiary.
Step 2: Get permission or tell your new beneficiary.
If you have an irrevocable beneficiary, you’ll have to get permission to change who receives your death benefit. Otherwise, you can just tell your beneficiaries you’re making changes and update any contact information.
Step 3: Submit the form.
Every insurer has a different process for changing beneficiaries. Many allow policyholders to do this online. After you’ve submitted the form, make sure to check back later and confirm with your insurer that your beneficiary has been changed.
How is life insurance paid out to beneficiaries?
In most cases, life insurers pay a lump sum to beneficiaries. Some insurers can pay out the death benefit in installments. If you’re a beneficiary who’s interested in this payment structure, speak to the insurer when you make a claim.
Generally, life insurance beneficiaries can choose one of the following payout methods.
Annuity payout 🕰️
Annuity payouts are specific amounts of money paid out at regular intervals until the death benefit funds are gone. The intervals may be monthly, quarterly or even annually.
Retained asset account 🏦
Some insurers offer the option to put the death benefit into an account that functions like a checking or money market account. Beneficiaries receive a debit card or checkbook and can choose to leave the money in the account and use the interest or withdraw it as needed.
Do life insurance beneficiaries have to pay taxes?
In most cases, no. The IRS says life insurance proceeds aren't counted as gross income so you don't have to report them.
One exception is a permanent life insurance policy that accrued interest. While the death benefit of that policy isn’t subject to taxes, any money earned from interest is considered taxable income.
Life insurance proceeds can also get caught up in more complicated tax liability if the beneficiary of the death benefit is an estate. You should consult with a tax professional about how these rules might apply if you choose to name your estate as a beneficiary.
» MORE: Life insurance and taxes
How can I find out if I’m a life insurance beneficiary?
The National Association of Insurance Commissioners (NAIC) has a policy locator service to find unclaimed policies. You’ll need to fill out the form to check the NAIC’s database. Be patient as it may take a few weeks to receive the results.
You can also visit the insured’s state insurance website to see if they have a policy locator or a form you can fill out to request more information.
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Frequently Asked Questions
Do my beneficiaries get all of my life insurance money?
In most cases, yes. However, the amount of life insurance your beneficiaries receive is based on a few things. First, it's based on the type of life insurance you have and the face amount or death benefit amount of your policy. Second, any riders or policy add-ons that were in effect could also affect the payout.
If you have permanent life insurance, the payout may be adjusted to account for withdrawals or loans made against the policy’s cash value.
What happens when a life insurance beneficiary is deceased?
If the primary beneficiary of a life insurance policy has died, the payout of the policy would go to any contingent beneficiaries. If there are no contingent beneficiaries, the life insurance proceeds would be paid to the insured person’s estate.
Do life insurance companies contact beneficiaries?
Typically, no. Life insurers have no obligation to reach out to your beneficiaries to let them know they’re owed a payout. It’s important to tell beneficiaries they’re listed on your policy so they can file a life insurance claim and get the money you intended to leave them.
Article sources
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- 1.Internal Revenue Service (IRS). Publication 555 (12/2024), Community Property. Accessed Aug 24, 2026.
- 2.Internal Revenue Service (IRS). Life insurance & disability insurance proceeds. Accessed Aug 24, 2026.
