Here's something most people don't realize until it's too late: choosing your life insurance beneficiary isn't a one-and-done decision. You can't just name someone when you buy the policy and forget about it. Life changes—you get married, have kids, get divorced—and if you don't update your beneficiary designations, your death benefit could end up in the wrong hands. Or worse, tied up in court for months while your family needs it most.
The good news? Once you understand how beneficiary designations work, keeping them current is straightforward. This guide will walk you through everything you need to know: the difference between primary and contingent beneficiaries, why naming minor children directly is a mistake, when to update your designations, and how to avoid the common errors that can derail your life insurance payout.
Primary vs. Contingent Beneficiaries: Your First Line of Defense
Your primary beneficiary is the first person (or people) who will receive your death benefit when you die. You can name one person to get 100% of the proceeds, or split it among multiple people in whatever percentages you choose. Most married couples name each other as primary beneficiaries. It's simple and makes sense—your spouse is likely the person who will need the financial support most.
But here's the critical part most people miss: you also need contingent beneficiaries. These are your backup designations. If your primary beneficiary dies before you—or dies at the same time as you in an accident—the contingent beneficiary receives the death benefit instead. Without a contingent beneficiary, your life insurance proceeds become part of your estate and must go through probate, a lengthy court process that can take months and expose the money to your creditors. Your family could be stuck waiting for funds they desperately need right now.
Common contingent beneficiaries include adult children, siblings, parents, or even charities you care about. The point is to always have a plan B—and ideally a plan C, since you can name multiple layers of contingent beneficiaries.
The Minor Children Problem (And How to Fix It)
If you have young kids, your first instinct might be to name them as beneficiaries. That makes sense emotionally—of course you want your children taken care of. But there's a problem: life insurance companies legally cannot pay death benefits directly to minors. They simply won't do it.
Instead, if you die with a minor listed as your beneficiary, the court will appoint a guardian to manage the money until your child turns 18 or 21, depending on your state. This process is expensive, time-consuming, and completely avoidable. Worse, once your child reaches the age of majority, they get the entire death benefit in one lump sum—whether they're mature enough to handle it or not.
You have better options. The most common is setting up a trust for your children and naming the trust as your beneficiary. With a trust, you designate a trustee (someone you trust to manage money responsibly) and set specific terms for how and when the funds can be used. Maybe you want the trustee to use the money for your child's education and living expenses, with the remainder distributed when they turn 25 or 30. That's your call.
For smaller death benefits—typically under $100,000—a UTMA (Uniform Transfers to Minors Act) custodianship is often simpler and cheaper than a trust. You name a custodian who manages the money until your child becomes an adult. It's not as flexible as a trust, but it's easier to set up and maintain.
Revocable Designations: You Can Change Your Mind
Almost all life insurance beneficiary designations are revocable, which means you can change them whenever you want without anyone's permission. Named your sister as beneficiary but now you're married? You can update it. Had another child? Add them to the list. Changed your mind about leaving money to a particular organization? Remove them.
There is one important exception: if your divorce decree requires you to maintain your ex-spouse as a beneficiary—usually to cover alimony or child support obligations—you're legally bound to keep them listed. Removing them could violate the court order and create serious legal problems for your estate.
The flexibility of revocable beneficiaries is helpful, but it also means you need to stay on top of your designations. Insurance companies won't remind you to update them. That's on you.
When to Update Your Beneficiaries (And Why It Matters)
Here's a scenario that happens more often than you'd think: someone gets divorced, intends to remove their ex-spouse as beneficiary, but never gets around to it. Years later they die, and the entire death benefit goes to the ex—even if they've remarried and have children with their new spouse. Why? Because divorce doesn't automatically change your beneficiary designation. You have to contact your insurance company and make the change yourself.
Experts recommend updating your beneficiaries within 30 to 60 days of any major life event. That includes marriage, divorce, having or adopting children, the death of a beneficiary, a significant change in your financial situation, or even a major falling-out with someone you'd previously named. Some states have 'revocation-upon-divorce' laws that automatically remove an ex-spouse as beneficiary, but these don't always apply—especially for group life insurance policies through your employer, which are governed by federal ERISA rules.
Even if nothing dramatic happens, it's smart to review your beneficiaries every couple of years. Relationships change. Circumstances change. Your life insurance should keep up.
Common Beneficiary Mistakes (And How to Avoid Them)
Beyond naming minors and forgetting to update after divorce, there are several other beneficiary mistakes that can create headaches for your loved ones. One of the most common is being too vague. Don't just write 'my children' if you have multiple kids or children from different relationships. Name each person specifically with their full legal name. Same goes for 'my siblings' or 'my nieces and nephews.' Be precise.
Another mistake is naming your estate as beneficiary. When you do this, the life insurance proceeds must go through probate—the same slow, expensive court process you're trying to avoid. Plus, creditors can make claims against your estate, potentially reducing what your family receives. Life insurance is designed to bypass probate and go directly to your beneficiaries. Don't sabotage that advantage.
You should also understand per stirpes versus per capita designations. This matters if you're naming multiple beneficiaries and one dies before you. With per stirpes (Latin for 'by branch'), if one of your children predeceases you, their share goes to their children—your grandchildren. With per capita ('by head'), the remaining living beneficiaries split everything equally, and the deceased person's children get nothing. Most people prefer per stirpes for their children, but make sure you specify your preference.
Finally, tell your beneficiaries about the policy. It sounds obvious, but insurers paid out $148.7 billion in death benefits in 2023, and an estimated 10 to 20 percent of claims face initial delays or denials—sometimes simply because beneficiaries didn't know the policy existed or couldn't find the paperwork. Give your beneficiaries the basic details: the insurance company name, policy number, and where to find the actual policy documents.
Getting Your Beneficiary Designations Right
Your life insurance beneficiary designation is just as important as the coverage amount you choose. You can have a million-dollar policy, but if your beneficiaries aren't set up correctly, that money might not get to the people you intended—or it could be delayed for months when your family needs it immediately.
The good news is that fixing beneficiary issues is straightforward. Contact your insurance company, request a beneficiary change form, fill it out with specific names and percentages, and return it. Most companies process changes within a few weeks. Set a reminder to review your designations every two years or after major life events. It takes ten minutes and could save your family months of frustration.
If you have questions about setting up a trust for minor children or complex family situations, talk with an estate planning attorney. For most people, though, getting beneficiaries right is simple: name specific people, include contingent beneficiaries, avoid naming minors directly, and update your designations when life changes. That's it.
