Beneficiary

A beneficiary is the person or entity designated to receive the proceeds or benefits from an insurance policy upon the policyholder’s death or when a covered event occurs. In life insurance, the beneficiary receives the death benefit as a tax-free lump sum. In accidental death and dismemberment (AD&D) insurance, the beneficiary receives payment if the insured person dies as the result of an accident. Beneficiaries can also be designated in certain health or travel plans that include accidental death benefits.

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The policyholder (also called the insured or owner) may name one or more beneficiaries and decide how benefits are distributed. Beneficiaries can be classified as primary, meaning they receive payment first, or contingent, meaning they receive payment only if the primary beneficiary has died or cannot accept the benefit. A beneficiary can be an individual, a trust, a charity, or an estate.

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Example:

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If you purchase a life insurance policy for $250,000 and name your spouse as the primary beneficiary and your children as contingent beneficiaries, your spouse receives the full amount if you pass away. If your spouse has also passed away, the benefit is paid to your children instead.

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What to Watch For:

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Always keep your beneficiary information up to date, especially after major life events such as marriage, divorce, or the birth of a child. If no beneficiary is named, the benefit may be paid to your estate, which could delay payment and make it subject to probate. Clearly identify beneficiaries by full legal name to avoid confusion or disputes.