When purchasing a life insurance policy, you must choose the person, or people, you want to receive benefits when you die. Only the owner of a life insurance policy maintains authority to add, remove or change beneficiaries. Understanding the different types of beneficiaries, as well as how and when the life insurance carrier pays each one, will reduce the likelihood of confusion and make choosing your own beneficiaries an easier process.
The primary beneficiary is your first choice to receive the proceeds from your life insurance policy. In most cases, the primary beneficiary is a spouse, child or other family member. However, no rules or laws exist that dictate who you may choose. Additionally, you can select as many primary beneficiaries as you deem appropriate, as well as decide what percentage of the proceeds each person will receive.
The contingent beneficiary is your second choice to receive benefits. Whomever you list as a contingent beneficiary will only receive the policy's proceeds if every other primary beneficiary is deceased or otherwise unable to accept a life insurance payout. The more primary beneficiaries you choose, the less likely that your contingent beneficiaries will get any money at all. Contingent beneficiaries have no right or claim to your life insurance proceeds unless the primary beneficiaries predecease you.
Per Stirpes Beneficiary
It is sometimes possible to choose beneficiaries, either primary or contingent, without specifically naming them. A “per stirpes” designation indicates your desire to have a beneficiary’s share of your life insurance proceeds pass to his own heirs if he predeceases you. However, if you indicate that one of your primary beneficiaries is “per stirpes,” you essentially void all listed contingent beneficiaries.
Typically, the owner of a life insurance policy may add, remove or change beneficiaries at his discretion. However, life insurance carriers offer the option to designate an “irrevocable” beneficiary. This type of beneficiary, once selected, can never be changed or removed from the policy.