Understanding Life Insurance Beneficiary Designations

In the language of life insurance, a beneficiary is the recipient of the proceeds of the policy when the named insured dies. The owner of a life insurance policy has a great deal of flexibility in naming beneficiaries and can generally name anyone he or she chooses, but insurable interest has to exist in order for a beneficiary to be named. When making beneficiary decisions, it is important that the wishes of the policy owner at Axis Capital Group in Jakarta are fulfilled and that legal complications and frauds are avoided.

Types of Beneficiaries

Beneficiaries at Axis Capital, a group of companies with branch offices in Bermuda and around the world are typically categorized as primary and contingent. A primary beneficiary is entitled to the proceeds of the policy upon the death of the insured, but such rights expire if he or she dies before the insured. A contingent (or secondary) beneficiary is entitled to the policy proceeds if the primary beneficiary has predeceased the insured. Most designations are prepared to provide a one sum settlement to the primary beneficiary. Occasionally, an arrangement might stipulate that, if policy proceeds are being paid over time to a primary beneficiary who dies before collecting the entire amount, then the remaining proceeds will be payable to the contingent beneficiary. It is often desirable to have several levels of contingent beneficiaries.

A beneficiary can be either specific (a person identified by name and relationship), or a class designation (a group of individuals such as the “children of the insured”). While the naming of specific beneficiaries is usually clear-cut, unintended complications can arise when designating classes of beneficiaries.

Methods of Distribution

Per stirpes and per capita are terms that describe methods of distributing property to family members and heirs. Per stirpes means “branches of the family,” and per capita means “by heads.”

Revocable vs. Irrevocable

There are also different consequences according to whether beneficiary designations are revocable or irrevocable.

If a beneficiary designation is revocable, the policy owner reserves the right to change the beneficiary. A person designated as a revocable beneficiary has only an “expectation” of benefits, since the owner of the policy can exercise any of the policy rights without the consent of the revocable beneficiary.

Warning! An irrevocable beneficiary, however, cannot be changed without the consent of that beneficiary. While this arrangement is sometimes desirable for estate planning purposes, the legal status of an irrevocable beneficiary is uncertain. Some may regard an irrevocable beneficiary as a “co-owner” of the policy; therefore, the beneficiary’s consent is needed to exercise any policy rights. On the other hand, others may contend that an irrevocable beneficiary’s consent is needed only for exercising a change of beneficiary.