Understanding how to change the beneficiary on a life insurance policy is important knowledge for anyone who owns a plan, as there are many reasons that you might want to update your beneficiaries.
If you experience a life event such as getting divorced, losing a loved one, having a child, getting married, or any other changes that impact your financial responsibilities, you’ll want to ensure that you name the right individual, people, organization, or trust to provide for the people or causes you care about.
In most situations, changing the beneficiary on a life insurance policy will be as simple as notifying the insurance company of the changes you want to make. You’ll often need to complete a form providing information about the beneficiaries you want to add and, if there’s more than one named beneficiary, how you want the policy proceeds to be split between them. However, there are a few situations where it may be a little more difficult or even impossible to change the plan’s named beneficiary.
When you don’t own the policy
If you have a life insurance policy in your name but you do not own the plan, you won’t be able to change the beneficiary named on the plan. This scenario is more common than you may think. For example, when a parent takes out a policy on their child to cover inheritable debt such as co-signed loans, the insured person (their child) cannot change the person named as the beneficiary. As the parent is the policy owner, only they have the power to add or remove beneficiaries from the policy. This is designed to protect the policy owner, as changes cannot be made to a policy they own without their consent.
When the policy has irrevocable beneficiaries
There are two class options for beneficiaries when you enroll in a life insurance policy: You can choose between revocable or irrevocable designations. The revocable class allows the policyholder to change the policy’s beneficiary at any point without having to ask permission from the existing beneficiary on the plan. This means that a policyholder can remove a beneficiary without notifying them of the change. If you name an irrevocable beneficiary when you purchase a policy, it means that the beneficiary you named when you purchased the policy cannot be removed from the plan without first giving their permission. This means that it will be a slightly more complicated process to change the beneficiary on the plan, but it isn’t impossible.
Naming a New Life Insurance Beneficiary
Knowing how to change the beneficiary on a life insurance policy is important, but it’s equally (if not more) important to understand the best ways of leaving money to your loved ones. It’s easy to fall into the trap of naming a beneficiary and thinking that the death benefit will protect them financially after your passing; however, there are a few questions you should ask yourself when choosing a new beneficiary: