Beneficiaries: What They Are and Why They Should Be Reviewed

By Chris Gavrel, Licensed Agent · 4 min read

Your beneficiary designation decides who gets the money from a policy or account. Checking it takes a few minutes. Getting it wrong can cause real heartache.

What is a beneficiary?

A beneficiary is the person, people, or organization you name to receive the money from a life insurance policy, an annuity, or a retirement account when you pass away. You name them on a form with the insurance company or account provider.

Primary and contingent

Primary beneficiary: First in line to receive the money.
Contingent (backup) beneficiary: Receives the money if the primary beneficiary has already passed away or can’t be found.

You can name more than one person in each group and split the money by percentages. Make sure the percentages add up to 100%.

Why beneficiaries are so important

Here’s the part that surprises a lot of folks. For life insurance, annuities, and many retirement accounts, the beneficiary form generally controls who gets the money. Not your will. If your will says one thing and the form says another, the form usually wins. Rules can vary by state and account type, so ask an attorney if you have questions about your situation.

A properly named beneficiary also helps the money avoid probate in many cases, so it can reach your family sooner.

Common mistakes I see

Mistake	What can happen
Ex-spouse still listed	Money may go to someone you no longer intended to receive it. Rules after divorce vary by state and account type.
Beneficiary has passed away, no backup	Money may go to your estate, which can mean delays and probate.
Naming “my estate”	The money can be tied up in probate and exposed to the estate’s debts.
Naming a minor child directly	Insurers generally can’t pay large amounts directly to a minor; a court may need to appoint someone to manage it.
Vague names (“my children”)	Can cause confusion. Use full names and relationships.
Forgetting old policies	A policy from an old job or decades ago may list outdated people.

Special situations

Minor children: Talk with an attorney about options such as a trust or a custodial arrangement, depending on your state.
Someone receiving needs-based government benefits: An inheritance could affect their eligibility. An attorney can explain options like a special needs trust.
Blended families: Be clear and specific so everyone is cared for the way you intend.
Charities and churches: You can name an organization as a beneficiary. Use its exact legal name.

When to review your beneficiaries

Marriage, divorce, or remarriage
Birth or adoption of a child or grandchild
Death of a beneficiary
A beneficiary’s situation changes, like a disability or financial trouble
Buying a new policy or changing jobs
At least once a year, as a habit

How to check and update

Gather each policy and account statement
Call the company or log in, and ask for the current beneficiary on file
Ask for a change-of-beneficiary form if anything needs updating
Use full legal names and, if requested, dates of birth
Keep a copy of the confirmation in your planning binder

Our free Beneficiary Review Worksheet makes it easy to see everything in one place.

Tell your beneficiaries

A beneficiary can’t claim money they don’t know about. Let them know a policy exists, which company it’s with, and where the paperwork is kept.

Beneficiaries and your will work together

Since beneficiary designations usually pass outside the will, you want the two pointing the same direction. Say your will splits everything equally among three children, but your biggest life insurance policy names only one. The result could be a long way from what you meant. So when you update your will, look at your beneficiaries too. And when you change a beneficiary, ask yourself whether your will still makes sense.

Per stirpes and per capita

Some forms ask how to handle a beneficiary who passes away before you. Two common terms are per stirpes (that person’s share goes to their descendants, such as their children) and per capita (the share is split among the surviving beneficiaries). The exact definitions can vary, so ask the company or an attorney before choosing.

Don’t forget other accounts

Life insurance is only one place beneficiaries matter. Annuities, retirement accounts, some bank accounts with payable-on-death designations, and certain investment accounts can also have named beneficiaries. Make one list of every account that allows a beneficiary, note who is named on each, and review the whole list together once a year so nothing gets missed.

If you’d like a hand looking over your policies to make sure they still match your wishes, I’m glad to help. A review doesn’t cost anything, and you’re not signing up for anything.

This article is for general educational purposes only and is not legal, tax, or financial advice. Coverage, pricing, and availability vary by age, health, state, and carrier.