Can You Have More Than One Beneficiary on a Life Insurance Policy?

Policyholders can designate more than one beneficiary on a life insurance policy. This allows the death benefit to be distributed among multiple individuals or entities according to their wishes. Naming beneficiaries channels proceeds directly to intended recipients, bypassing the lengthy and costly probate process an estate might otherwise undergo. Designating beneficiaries is a crucial element of financial planning, providing peace of mind that loved ones will be cared for.

Naming Multiple Beneficiaries

Policyholders can designate multiple beneficiaries, providing flexibility in how the death benefit is allocated. The primary beneficiary is the individual or entity first in line to receive the policy payout. Multiple individuals can be named as primary beneficiaries, with the policyholder specifying the exact percentage of the death benefit each is to receive, ensuring the total allocation equals 100%.

It is also recommended to name contingent beneficiaries. These individuals or entities serve as “backup” recipients, receiving the proceeds if all primary beneficiaries predecease the insured or are otherwise unable to accept the benefits. Multiple contingent beneficiaries can be named, and their shares can also be specified by percentage.

When establishing shares for multiple beneficiaries, policyholders can use distribution methods such as “per stirpes” or “per capita.” A “per stirpes” designation, meaning “by branch,” ensures that if a named beneficiary dies before the insured, that deceased beneficiary’s share passes down to their direct descendants. In contrast, “per capita” means “by head,” and dictates that the death benefit is divided equally among only the surviving named beneficiaries at the time of payout, with no share passing to the descendants of a deceased named beneficiary. The choice between these methods impacts how proceeds are distributed if a named beneficiary is not alive to receive their share.

How Payouts Work with Multiple Beneficiaries

The distribution of life insurance proceeds to multiple beneficiaries depends on the designations and circumstances at the time of the insured’s passing. If all primary beneficiaries are alive, the death benefit is divided among them based on the percentages or equal shares specified in the policy. Each beneficiary files their own claim with the insurance provider.

If one or more primary beneficiaries predecease the insured, the payout mechanism changes based on the chosen distribution method. If the policy specifies “per stirpes,” the share of a deceased primary beneficiary passes to their living direct descendants. Conversely, if the policy specifies “per capita,” the share of a deceased primary beneficiary is reallocated and divided equally among the remaining living primary beneficiaries.

If all primary beneficiaries are deceased or cannot receive the payout, the death benefit defaults to the named contingent beneficiaries. If no primary or contingent beneficiaries are alive or able to receive the funds, the life insurance proceeds become part of the insured’s estate. This can subject the funds to the probate process, potentially leading to delays, additional legal costs, and exposure to creditors before heirs can receive the remaining assets.

Updating Beneficiary Designations

Regularly reviewing and updating life insurance beneficiary designations is important, as life events can necessitate changes. Events such as marriage, divorce, the birth or adoption of a child, or the death of a named beneficiary are common reasons to revise designations. Keeping these designations current ensures the death benefit aligns with the policyholder’s evolving wishes and family structure.

The process for changing beneficiaries involves contacting the insurance company and submitting a formal change of beneficiary form, which may be available online or require a physical submission. Policyholders should understand the distinction between revocable and irrevocable beneficiaries. A revocable beneficiary can be changed at any time by the policyholder without the beneficiary’s consent. In contrast, an irrevocable beneficiary designation cannot be changed or removed without their express written consent, providing them with a secured right to the policy proceeds.

When naming minor children as beneficiaries, minors cannot directly receive life insurance payouts. To address this, policyholders can establish a trust and name the trust as the beneficiary, with a designated trustee managing the funds for the minor’s benefit until they reach the age of majority. Alternatively, a custodial account under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) can be used, with a custodian managing the funds. Consulting with legal and financial professionals can help ensure that arrangements for minor beneficiaries are structured appropriately.