Can You Change the Beneficiary of a Life Insurance Policy?

Life insurance policyholders can modify the designated recipient of funds. A life insurance policy provides financial support to chosen individuals or entities after the policyholder’s passing. Regularly reviewing and updating these designations ensures the policy fulfills its intended purpose as life circumstances evolve.

Understanding Beneficiary Designations

A life insurance beneficiary is the person or entity legally entitled to receive the policy’s death benefit upon the insured’s death. This designation dictates the distribution of the policy’s value. Understanding beneficiary types helps policyholders determine their flexibility in making changes.

Beneficiaries are classified as either revocable or irrevocable. A revocable beneficiary designation allows the policy owner to change the beneficiary at any time without the current beneficiary’s consent. This offers flexibility to adjust wishes as life situations change. Most policies are issued with revocable designations by default.

Conversely, an irrevocable beneficiary designation means the policy owner cannot change the beneficiary without the named beneficiary’s written consent. This designation provides the beneficiary with a vested interest, a legal right to the death benefit that cannot be unilaterally removed. Irrevocable designations are less common, used in situations like divorce settlements or business agreements to ensure payment to a specific party.

Steps to Change a Beneficiary

Changing a life insurance beneficiary requires a clear procedure to ensure the update is legally binding and accurately recorded. First, contact your life insurance provider to obtain the beneficiary change form. Many insurers offer these forms for download online or by request via phone or mail.

Once acquired, complete the form with precise information. This includes:
Full legal name of new primary and contingent beneficiaries
Their relationship to the insured
Current contact information
Social Security numbers

Clearly indicate the percentage of the death benefit each beneficiary is to receive, ensuring the total allocation equals 100%. Inaccurate details could delay or invalidate the change.

After completing the form, submit it to the insurance company. Submission methods include:
Mailing the original signed form
Submitting through a secure online portal
Sending via fax

Some insurers require a wet signature, while others accept electronic signatures.

After submission, confirm the change has been processed by the insurer. Most companies send a written confirmation, like an updated policy summary or endorsement page, within weeks. This verifies the new designation is on record and supersedes previous ones. Keep a copy of the submitted form and the insurer’s confirmation.

Important Considerations for Your Designation

When designating beneficiaries, understand the distinction between primary and contingent beneficiaries. A primary beneficiary is first in line to receive the death benefit. A contingent beneficiary receives proceeds if the primary beneficiary is no longer living at the insured’s death. Naming both helps avoid complications, such as the death benefit being paid to the insured’s estate if no living beneficiary is designated.

Naming a minor child directly as a beneficiary can create complexities, as minors cannot legally receive or manage large sums. Alternatives include:
Naming a custodian under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA), allowing an adult to manage funds until the child reaches a specific age (usually 18 or 21).
Establishing a trust and naming the trust as the beneficiary, with the minor as a trust beneficiary.

Utilizing a trust as a life insurance beneficiary offers greater control over how and when the death benefit is distributed, especially for complex situations like providing for a minor, a beneficiary with special needs, or managing significant assets. When a trust is named, the death benefit is paid to the trust, and the trustee manages and distributes funds according to the trust’s terms. Establishing a trust requires careful legal planning to align with the policyholder’s intentions and legal requirements.

Spousal consent may be required to change a life insurance beneficiary, particularly in community property jurisdictions or for policies purchased with marital assets. In community property states, assets acquired during marriage, including policies where premiums are paid with marital income, are considered community property. A surviving spouse may have a legal claim to a portion of the death benefit, even if not explicitly named.

Some employer-sponsored life insurance plans, especially those governed by the Employee Retirement Income Security Act (ERISA), have specific regulations regarding spousal beneficiary rights that supersede state laws. ERISA generally requires a participant’s spouse to be the default beneficiary of a qualified retirement plan unless the spouse provides written consent to a different beneficiary. This spousal protection can override state community property laws or automatic divorce revocation statutes for ERISA-governed plans.

Divorce has significant implications for beneficiary designations. Review and update policies promptly after a divorce is finalized. Many states have “revocation-upon-divorce” laws that automatically remove an ex-spouse as a beneficiary upon divorce, treating them as if they had predeceased the insured. However, this automatic revocation is not universal across all states or policy types. Group life policies governed by ERISA, for example, typically do not fall under state automatic revocation laws; an ex-spouse could remain the beneficiary if not actively changed.

Understanding the distinction between the policy owner and the insured is important when considering beneficiary changes. The policy owner holds the legal rights to the policy, including the ability to change beneficiaries, take out loans, or surrender the policy. If the insured is not the policy owner, they lack the authority to alter beneficiary designations, even though the policy is on their life. This separation of roles is common in business insurance or when one individual purchases a policy on another’s life.