Rights of Life Insurance Beneficiaries

Hello All, 

A life insurance policy helps make certain those goals you or your beneficiaries have come to fruition even when you pass away. In the policy, you name a specific person, persons or others as a beneficiary or beneficiaries of the policy so they can pay for the things you felt were necessary or important after you’ve died. But what rights do the beneficiaries actually have?


According to life insurance law a person or persons named as a beneficiary must suffer some form of financial loss if you die. This is called an insurable interest and can include family, business partners, life partners and the like. A life insurance company can’t accept any person or entity without an insurable interest as a beneficiary. After the policy is issued, however, you can change the beneficiary to anyone you want to, even the local mail carrier. And, unlike a will, the named beneficiary cannot be contested by anyone. The insurance company has a legal obligation to pay them. You can also choose to divide the proceeds of the policy by percentages or equally if there are several beneficiaries you’ve named. This can include any surviving family or heirs of said beneficiaries should they also pass away before the proceeds are released.


Naming a beneficiary also helps avoid state inheritance or estate taxes in some states. Some states don’t include the life insurance proceeds going to a named beneficiary as taxable inheritance, even though the funds are still subject to the federal estate tax. Naming one or several primary and secondary beneficiaries is another contingency. Without multiple or secondary named beneficiaries the proceeds go to the estate and become an asset of probate, creating a time-delay before they can legally be distributed.


It’s important to word the policy correctly if naming children as beneficiaries. Include any unborn children so future family members aren’t accidentally left out of life insurance benefits. Also, do not name a trusted adult family member as a custodian of the child’s benefits and hope they will use the funds in the best interest of a minor. Many times in that situation, the funds simply become theirs to use for whatever they wish instead of protecting yours or the child’s interests. Fortunately, many states will not  release the funds if the child or children are under the age of majority but you can allow you to name a custodian on the provision the court approves any use of the beneficiary funds. This allows the money to be available while the children are young and helps direct the use of the money as you had planned.


Finally, a spendthrift clause may automatically be written into the life insurance policy. The wording used helps to prevent any creditors from legally attaching the beneficiary proceeds. Any proceeds are also protected from attachment by debtors’ creditors. The proceeds will then go directly to the intended person or persons, no matter how much the insured owes to creditors or others.
Until next time,

Michael Hartmann http://www.findyourpolicy.com/
Tweeter: @FindurPolicy

Always remember our Mission Statement

Leave a Reply

Your email address will not be published. Required fields are marked *