When it comes to how you want your life insurance benefits to be distributed, it's important to consider all of your available options. That's especially true when it comes to setting up your estate, which involves designating beneficiaries.
Here's what you need to know about irrevocable and revocable life insurance beneficiaries.
What is a life insurance beneficiary?
A life insurance beneficiary is a person or entity you designate to receive your life insurance death benefits after you pass.
As you go through the process of purchasing a life insurance policy, take the time to consider exactly who you'd like to designate as your beneficiary. With life insurance, you have a few common options for designating beneficiaries, including a "revocable" or "irrevocable" designation. It's important to understand the key differences between these designations before you make any final decisions.
What is a revocable beneficiary?
With a revocable beneficiary, the person or entity you choose has no guaranteed rights when it comes to receiving the death benefit. The policy owner is in total control.
In this case, you as the policy owner, have the right to make changes on your own — that includes updating or changing the designated beneficiary.
What is an irrevocable beneficiary?
As an irrevocable beneficiary, the person or entity chosen has certain rights with regard to the death benefit of your policy.
This can impact you in a few ways. For example, if you decide to change a named beneficiary, the current beneficiaries must also sign off on these changes, as well. It's not as simple as switching out a name.
With a life insurance policy, you're allowed to name more than one person or entity as your beneficiary. You can also designate primary, secondary and tertiary beneficiaries. In these cases, if the primary beneficiary listed passes away before you, the benefits would then pass to your secondary beneficiary, and so on.
When choosing a beneficiary, it's critical to avoid a few key mistakes. For example, make sure you list the full name and Social Security number of your designated beneficiary. Also, if you choose more than one beneficiary, list the percentage split between them. Finally, update your beneficiary, if necessary, when you experience any major life changes.
If you do decide to choose an irrevocable beneficiary, be sure that you understand and review all your options before you sign.