Understanding Beneficiaries: Who Gets the Money?

Choosing a beneficiary may be the most important decision you make when setting up your life insurance policy. Get it right, and your family receives exactly what you intended. Get it wrong, or forget to update it, and the consequences can be significant.

What is a beneficiary?

A beneficiary is the person or entity you designate to receive your life insurance death benefit when you pass away. You can name almost anyone, such as a spouse, child, parent, sibling, friend, business partner, trust, or a charity.

Most policies let you name multiple beneficiaries and set what percentage of the death benefit each person receives. For example, you might leave 60% to your spouse and 40% split equally between your two children.

Primary vs. contingent beneficiaries

There are two types to know:

• Primary beneficiary. The first in line to receive the death benefit. If they are alive and able to receive it, they get it.
• Contingent beneficiary. The backup. If your primary beneficiary passes away before you or cannot receive the benefit, it goes to your contingent beneficiary instead.

Always name both. Failing to name a contingent beneficiary means the death benefit could go through probate if your primary beneficiary passes away before you, a process that can take months and reduce what your family ultimately receives.

Can you name a minor as a beneficiary?

Technically yes, but it is complicated. Insurance companies cannot pay death benefits directly to minors. If you name a child under 18, a court will usually need to appoint a guardian to manage the funds until the child reaches adulthood, which can take time and money.

A better approach is to set up a trust, or name a trusted adult as custodian for the minor. An Eterna agent can talk through the options for your situation, alongside your attorney.

The most common beneficiary mistakes

• Forgetting to update after major life events. A divorce, remarriage, new child, or a beneficiary's death can make your existing designation outdated or even harmful.
• Naming your estate as beneficiary. This sends the death benefit through probate, which can delay payment and reduce what your family receives.
• Not naming a contingent beneficiary. This leaves no backup if your primary beneficiary passes away first.
• Naming a minor directly. This creates legal complications around who manages the funds.
• Not telling your beneficiaries. They need to know the policy exists and where to find it.

When should you update your beneficiaries?

Review and update your beneficiaries whenever you experience a major life change:

• Getting married or divorced
• Having or adopting a child
• The death of a named beneficiary
• A significant change in your relationship with a named beneficiary
• Starting or dissolving a business partnership

Updating your beneficiaries is free and takes only a few minutes. Contact your carrier or your Eterna agent to make changes at any time.

Next steps

Need help reviewing your policy or setting up beneficiaries correctly? A licensed Eterna agent can make sure everything is set up the way you intend, at no cost. To see the bigger picture, read how life insurance works.