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. The policyowner chooses the beneficiary, and when the insured dies, the insurer pays that beneficiary the benefit. Choosing and updating beneficiaries correctly is one of the most important things a policyowner does.

Types of beneficiaries

• Primary — first in line to receive the proceeds.
• Contingent (secondary) — receives the proceeds only if the primary beneficiary has died or can't be found.
• Revocable — can be changed by the policyowner at any time, with no permission needed.
• Irrevocable — cannot be changed without that beneficiary's consent, giving them a vested right.

Why it matters

Naming a beneficiary lets life insurance proceeds pass directly to loved ones, usually bypassing the delays and publicity of probate. Keeping the designation current—after marriage, divorce, or a death—prevents the money from going to the wrong person. An out-of-date beneficiary form is a classic, avoidable mistake.

A simple example

A parent buys life insurance and names their spouse as the primary beneficiary and their adult child as the contingent beneficiary. If the spouse is alive when the parent dies, the spouse receives the benefit. If the spouse died earlier, the child—as contingent—receives it instead.

Don't confuse it with…

• The beneficiary receives the money; the insured is the person whose life is covered; the policyowner controls the policy. These can be three different people (or overlap).
• A beneficiary designation generally overrides a will for the policy proceeds, so the form—not the will—usually controls who gets paid.

On the exam

Know primary vs. contingent and revocable vs. irrevocable (irrevocable requires the beneficiary's consent to change). Remember proceeds usually avoid probate and that the beneficiary, insured, and owner can be different parties.