Life Insurance Beneficiaries

Key Concepts

• Beneficiary Definition:

  • A beneficiary is a person who receives the proceeds from a life insurance policy upon the policyholder's death.
  • Beneficiaries are not parties to the insurance contract.

• Changing Beneficiaries:

  • The policyholder can change the beneficiary at any time.
  • Changes must be in writing and can be made via the insurance application or through a will.
  • The most recent document filed determines the current beneficiary.

• Multiple Beneficiaries:

  • Policyholders can designate multiple beneficiaries and assign different percentages of the proceeds to each.

Categories of Beneficiaries

• Preferred Beneficiary:
  • Also known as protected or family class beneficiaries.
  • Includes spouse, common-law spouse, child, grandchild, or the parent of the policyholder.
  • Proceeds are protected from the policyholder's creditors.

Beneficiary Designations

• Revocable Beneficiary:

  • Can be changed at any time without the beneficiary's consent.

• Irrevocable Beneficiary:

  • Requires the beneficiary's consent to make changes.
  • Limits policyholder’s rights such as withdrawing cash or assigning the policy without consent.
  • Automatically creditor-proof, meaning creditors cannot access the assets.

Processing Claims and Resolving Disputes

• Insurance companies pay claims to the last designated beneficiary on record.
• Disputes are resolved by courts if contested.

Important Points

• Beneficiary designations must be registered with the insurance company.
• Creditors cannot access proceeds if a preferred or irrevocable beneficiary is named.
• Changes in beneficiary designations are crucial and must be documented properly.