Understanding how to change the beneficiary on a life insurance policy is important knowledge for anyone who owns a plan, as there are many reasons that you might want to update your beneficiaries.
If you experience a life event such as getting divorced, losing a loved one, having a child, getting married, or any other changes that impact your financial responsibilities, you’ll want to ensure that you name the right individual, people, organization, or trust to provide for the people or causes you care about.
In most situations, changing the beneficiary on a life insurance policy will be as simple as notifying the insurance company of the changes you want to make. You’ll often need to complete a form providing information about the beneficiaries you want to add and, if there’s more than one named beneficiary, how you want the policy proceeds to be split between them. However, there are a few situations where it may be a little more difficult or even impossible to change the plan’s named beneficiary.
When you don’t own the policy
If you have a life insurance policy in your name but you do not own the plan, you won’t be able to change the beneficiary named on the plan. This scenario is more common than you may think. For example, when a parent takes out a policy on their child to cover inheritable debt such as co-signed loans, the insured person (their child) cannot change the person named as the beneficiary. As the parent is the policy owner, only they have the power to add or remove beneficiaries from the policy. This is designed to protect the policy owner, as changes cannot be made to a policy they own without their consent.
When the policy has irrevocable beneficiaries
There are two class options for beneficiaries when you enroll in a life insurance policy: You can choose between revocable or irrevocable designations. The revocable class allows the policyholder to change the policy’s beneficiary at any point without having to ask permission from the existing beneficiary on the plan. This means that a policyholder can remove a beneficiary without notifying them of the change. If you name an irrevocable beneficiary when you purchase a policy, it means that the beneficiary you named when you purchased the policy cannot be removed from the plan without first giving their permission. This means that it will be a slightly more complicated process to change the beneficiary on the plan, but it isn’t impossible.
Naming a New Life Insurance Beneficiary
Knowing how to change the beneficiary on a life insurance policy is important, but it’s equally (if not more) important to understand the best ways of leaving money to your loved ones. It’s easy to fall into the trap of naming a beneficiary and thinking that the death benefit will protect them financially after your passing; however, there are a few questions you should ask yourself when choosing a new beneficiary:
Will the beneficiary be old enough to efficiently use the money?
If your beneficiaries are minors, you should consider setting up a trust to receive the money on their behalf. You’ll then be able to ensure that they only receive the money when they reach a certain age or provide their guardian with a financial fund to care for your kids. You should consult with an estate-planning expert to find the best way to leave a death benefit to a minor.
Have you updated your will to reflect the change?
Although the life insurance policy beneficiary can be changed without , having all documentation reflect the changes can help eliminate disputes and ensure your loved ones have access to the funds quickly. It’s important to note that you should not rely on simply changing the listed policy beneficiary in your will; you need to file the necessary paperwork with the insurer to make sure the changes are accepted.
Have you added both primary and secondary beneficiaries to your life insurance policy?
One of the easiest mistakes to make when it comes to choosing a new life insurance beneficiary is to forget to add a contingent beneficiary to the policy. The contingent or secondary beneficiary is used when the plan’s primary beneficiary passes away before the policyholder, or both the policyholder and the beneficiary pass at the same time. For example if the spouse named as the beneficiary dies at the same time as their husband, who is the policyholder, the death benefit would be paid to the secondary beneficiary. If no secondary beneficiary is named, the plan’s death benefit is considered part of the estate and will be tied up until probate is settled. Naming a secondary beneficiary helps prevent delays in the benefit being paid. However, if you do want your death benefit to be considered part of your estate, you can name your estate as the beneficiary!
Protect Your Loved Ones With Life Insurance
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