Revocable and Irrevocable Beneficiaries - What's the Difference?

All life insurance policies require a beneficiary. A beneficiary is the recipient of the proceeds which are paid from a life insurance policy in the event of the death of the insured person. Most people think a beneficiary is a person, and in most cases they are correct. However a beneficiary can be an estate, a charity, a church, a trust and a company. There really is any number of beneficiary designations that can be made.

A beneficiary that can be changed at any time by the life insured person is known as a revocable beneficiary. Let me give an example of such a situation. Spouses with young families often carry lots of life insurance. In the event of a death, the insurance is usually paid to the surviving spouse. As situations change and the parents age, and the children get on their own, the insured person may want to name their church or special charity as a beneficiary. They can change the beneficiary any time that they want, thus it is known as a revocable beneficiary.

An irrevocable beneficiary is a beneficiary designation that can't be changed without the permission of the beneficiary. Let 's look at an example when that would be apply. Many times, when a separation or divorce occurs, there is an order for support. A lot of divorce agreements and separation agreements require life insurance be in place to back up support payments in the event of an untimely death. In that case, it would be wise to have an irrevocable beneficiary, to protect the person who is receiving the support payments. Any changes to the life insurance policy can only be executed with the permission of the beneficiary.

In many cases, private loans are made for business ventures, mortgages etc. The person or company lending the money requires that life insurance be put in place to cover the outstanding debt. The lender wants to be assured that should the borrower die, insurance is in force to cover the debt. Being appointed an irrevocable beneficiary assures the person or company that no changes can be made to the Life Insurance policy without their written consent.

I hope this clears up any questions you may have. Over 99% of beneficiary designations are of the revocable kind. For other interesting information, visit our website.

John Kovats, CLU
Co-Founder

The Benefit Guys

Bake Chicken Foods