What Is a Life Insurance Beneficiary?

Liz Caldwell is a senior director of Insurance Solutions at Northwestern Mutual.

If you're thinking about getting life insurance, it’s probably because you have people you want to protect financially when you’re no longer around. These are the people you’d likely designate as beneficiaries on your policy.

A life insurance beneficiary is whom you want the life insurance policy’s death benefit to go to after you pass away. The beneficiary can be one person—such as your spouse—or multiple people. Or you can designate a trust or charity as your beneficiary.

You can divide the payout any way you prefer. For example, children can get different amounts. You can also choose contingent beneficiaries, who will get the death benefit if your primary beneficiaries are deceased or can’t be found. (To streamline finding your beneficiary, list their full name and accurate Social Security number.)

How do I choose a life insurance beneficiary?

Your life insurance beneficiaries can be anyone who depends on you financially and would need financial help if you died. Often, it’s a spouse, children or other family members. For example, you could leave money to your parents if you help them with their car payments.

Financial dependence isn’t limited to just relying on your income, either. For example, if you’re a stay-at-home parent and your family would need to pay for childcare in the event of your death, that’s an expense that a death benefit could help pay for.

It’s important to use full names to avoid confusion. To indicate any children not yet born, you could talk to your financial advisor about using a phrase such as “per stirpes.” Once the child is born, it’s best to update the beneficiary with the child’s full name. You can also designate a trust that is set up to financially support your loved ones as the beneficiary, or name a charitable organization as a beneficiary if you want the death benefit to go toward one of your favorite causes.

Life insurance beneficiary rules and FAQ

There aren’t many rules limiting your choice of a life insurance beneficiary on a policy that you own. But here are some guidelines to make things more straightforward after you pass away.

Can a minor be a life insurance beneficiary?

Yes, you can name a minor as a beneficiary, but it’s best practice to not name a minor as a direct beneficiary. But if they’re a minor when you pass away, court involvement will be necessary. A minor can't receive funds from a life insurance policy directly, so the death benefit would go to the minor’s legal guardian. If there is no legal guardian designated, a court will name one. A court proceeding can be a complicated and lengthy process,

Many people bypass court involvement by setting up a trust as the beneficiary, and the trustee administers the money on behalf of the minor according to your wishes.

Can a will be used to name a life insurance beneficiary?

This is possible but not typically recommended. Keep in mind that your beneficiary designations override what’s stated in a will—which is why it’s a good idea to review your policy’s beneficiaries every year and make sure they reflect your wishes. You could designate a trusted adult as your beneficiary and include instructions in a will on how to use the proceeds to take care of the child. But this can get complicated. The trusted adult doesn’t have a fiduciary duty to the minor, and creditors of the adult can access the death benefit. Setting up a trust is likely a better option.

What happens if a life insurance beneficiary dies?

If your primary beneficiary has died and you didn’t list secondary or contingent beneficiaries, the death benefit will pass to your estate. Your estate would be subject to probate, even if you have a will. This means it could be contested, and creditors may try to make a claim for any debts you owe before the money is distributed to your heirs.

Can you name anyone as a life insurance beneficiary? 

As long as you’re the policyowner, you can designate almost anyone as a beneficiary. For life insurance policies where the policyowner isn’t the insured person, beneficiaries need to have an “insurable interest” in the insured person. This means they would suffer financially as a result of your death as the insured person. In other words, you can’t involve just anyone in a life insurance policy.

It’s common to own a life insurance policy insuring your spouse with yourself as the beneficiary, but you can’t own a policy on an acquaintance who doesn’t affect your finances.

To leave money after your death to an acquaintance, you should talk with a legal expert. They might recommend using a will or establishing a trust.

Can a spouse override a life insurance beneficiary designation?

A living spouse doesn’t automatically overrule the beneficiary in most cases. Normally, the beneficiary you name on your policy remains in place unless you or another policyowner changes it. But in some states, a divorce will automatically remove your ex-spouse as the beneficiary unless there’s a written agreement to keep them.

If you get divorced after you have set up your beneficiaries, you may want to name a new beneficiary so that the death benefit is paid according to your wishes. Again, because your beneficiary designation overrides your will, it’s important to keep your beneficiaries up to date. Remember to think about policies you pay for and policies provided by your employer.

Do beneficiaries pay taxes on life insurance policy benefits?

Generally, life insurance benefits aren’t taxable to beneficiaries, and they wouldn’t have to report the payout on their income tax returns. However, a death benefit could be subject to estate tax depending on whether your life insurance is included in your estate and whether your estate exceeds the estate tax exemption set by federal or state law.

Who can change the beneficiary on a life insurance policy?

In most cases, only a policyowner can change the beneficiary, but there are exceptions:

• Power of attorney: Depending on state law, a power of attorney for you can change the beneficiary on your life insurance policy. A power of attorney should be someone you trust.
• Community property laws: If you live in a community property state, your spouse is usually considered to be a partial owner of your life insurance policy, since the money used to pay the premiums is considered joint property. A community property spouse may have rights to the death benefit.
• Irrevocable beneficiary: Some life insurance policies are written with an irrevocable beneficiary, which means you can't remove that beneficiary from the policy without their consent.

Will my life insurance beneficiary have enough from my policy?

There’s a lot to consider when determining whether you’re leaving behind enough life insurance money. Your Northwestern Mutual financial advisor can help you calculate your needs using proprietary software. They will ask deep questions and get to know you and then help ensure you have enough financial protection for your family. They can also help you with a plan to grow your money.