A beneficiary is the person or entity named to receive the proceeds of a policy, most commonly the death benefit of a life insurance policy or the death benefit of an annuity. The policyowner names the beneficiary (in health policies under the NAIC model, the right to change the beneficiary belongs to the insured). When the insured dies, the insurer pays the beneficiary according to the designation on file.

Types of beneficiaries

• Primary – first in line. Several primaries share equally unless the owner says otherwise.
• Contingent (secondary) – paid only if no primary beneficiary is living at the insured's death.
• Tertiary – paid only if both primary and contingent beneficiaries have died.
• Revocable – the owner may change it at any time by written request, without consent.
• Irrevocable – has a vested interest; changes affecting it require that beneficiary's consent.

Ways to divide proceeds

• Per capita – split equally among the surviving named beneficiaries.
• Per stirpes – a deceased beneficiary's share passes to that beneficiary's descendants.
• Class designation – "my children," including children born after the designation.

Why it matters

Proceeds paid to a named beneficiary go directly to that person, while proceeds payable to the estate pass through probate and can be reached by the decedent's creditors. A minor can't receive proceeds directly, so payment goes to a guardian or trustee; naming a trust lets the owner control how the money is used.

A simple example

A parent names a spouse as primary beneficiary and an adult child as contingent. If the spouse is alive at the parent's death, the spouse is paid. If the spouse died first, the child receives the proceeds. If the parent and spouse die in the same accident with no proof of who died first, the Uniform Simultaneous Death Act presumes the insured survived, so the child, as contingent, is paid.

Don't confuse it with…

• The beneficiary receives the money; the insured is the life covered; the owner controls the policy. They can be three different people.
• A contingent beneficiary is a backup, not a co-beneficiary.

On the exam

Know primary/contingent/tertiary, revocable/irrevocable, and per capita/per stirpes. Remember the simultaneous death presumption, that estate designations go through probate, and that a minor's share is paid to a guardian or trustee.