Understanding your rights and responsibilities as a life insurance policyowner is essential—especially when it comes to naming or changing beneficiaries. This article explores when a policyowner can change a revocable beneficiary, what makes this type of beneficiary different, and what steps are involved in making such a change. We’ll also clarify who has the right to change a revocable beneficiary and what implications those decisions may carry.
As the policyowner, you maintain full control over your life insurance policy, whether or not you’re the insured. One of the key advantages of this control is having the authority to decide who receives the death benefit after the insured passes away. Before changing or naming a new beneficiary, it’s important to understand the differences between beneficiary types, the process of updating beneficiaries, and the impact those changes can have. By gathering all relevant information about your policy, you’ll be better equipped to make a decision that aligns with your goals and protects the interests of everyone involved.
Understanding Beneficiary Types
When you purchase a life insurance policy, you must assign at least one beneficiary to receive the death benefit upon the insured’s passing. This ensures that the death benefit will be paid to the beneficiary and that they will be financially supported. What many often don’t understand are the types of beneficiaries life insurance policies can include. Let’s review what revocable and irrevocable beneficiaries are, what the legal ramifications are for each type, and practical steps for changing the beneficiary if you need to in the future.
Differentiating Revocable and Irrevocable Beneficiaries
A revocable beneficiary allows the policyowner to change the beneficiary without approval. If the position is revocable, it can be taken away, and since the policyowner owns and controls the policy, they will have the final say in who receives the death benefit. Typically, life insurance policies include a revocable beneficiary by default as this is a more flexible option for policyowners, giving them the ability to choose who they want to collect the death benefit. On the other hand, this decision limits the beneficiaries’ abilities since they have no say in the final decision, which means that the policyowner can remove them as a beneficiary without needing approval. Ultimately, the policyowner has the right to change the amount their revocable beneficiaries will receive, and if the policy is canceled, the beneficiaries do not need to be notified.
Alternatively, an irrevocable beneficiary is an individual who cannot easily be changed as a beneficiary on a life insurance policy. This means that if a policyowner wants to change the beneficiary, they must obtain the approval of the irrevocable beneficiary and complete any other necessary information. Additionally, the policyowner cannot change the amount of money the irrevocable beneficiary will receive, and if the policy is canceled, the beneficiary must be notified of the change. This limits the power of the policyowner because even though they own the policy and manage it as a whole, they cannot make any direct changes to any information regarding the beneficiary without their approval. In this case, the beneficiary gains more flexibility because they have a say in whether the beneficiaries will change and how much they will receive from the death benefit once the insured passes.
Typical Scenarios for Each Beneficiary Type
Your life circumstances impact your decision to name a revocable or irrevocable beneficiary for your life insurance policy. An irrevocable beneficiary can be a good option if you want to ensure a specific individual gets the death benefit without any complications. This can cause issues if your life circumstances change. Later, if you decide that you would not want them to be a beneficiary anymore, such as with a divorce, you would need their approval to remove/replace them as the beneficiary.
A revocable beneficiary is a practical solution if you have any concerns that you may want to switch beneficiaries. In the case of a divorce, the birth of a child, or the death of a loved one, you might want to switch beneficiaries. Choosing a revocable beneficiary allows you to more easily manage your policy.
Common Questions About Changing a Revocable Beneficiary
Before you change your beneficiary, be sure to understand the potential legal implications and the procedure for changing a beneficiary to ensure you don’t run into any complications.
Legal Implications
To change your beneficiary, you will need a change of beneficiary form. Legal complications can arise if individuals think that the beneficiary change is suspicious. This can result from forgery and coercion, among other issues that would then cause a legal procession meant to confirm the validity of the change. An example could be if the beneficiary were changed near the insured’s death. Doing so could raise suspicions about the original beneficiaries and why they were switched right before the insured passed away. If the policyowner was coerced in any way to change the beneficiary of their policy, the change would be invalid, and the original beneficiaries would remain.
If a policyowner wanted to change an irrevocable beneficiary without their permission, that could also cause further legal complications, as their approval is necessary to alter existing beneficiaries.
Procedure for Changing a Revocable Beneficiary
The first step in changing a revocable beneficiary is to complete a change of beneficiary form. Filling out this form will indicate to your life insurance company that you want to begin the process to change the beneficiary. Once you send in the completed form, your life insurance company will notify you when the change is in effect. This could take a few days to weeks, depending on the type of beneficiary and how quickly the insurance carrier works. Once you receive confirmation that your revocable beneficiary has changed, there is nothing more to do, and you can rest assured that the beneficiaries you want to receive the death benefit of your policy are in place.
How to Name and Change Beneficiaries
If you want to change or name a new beneficiary, the steps and implications below can help you decide between revocable and irrevocable beneficiaries.
Initial Steps in Naming a Beneficiary
- Review the policy: Before naming a beneficiary, you should review your life insurance policy. This ensures that you know all of the details in your policy and can disperse the death benefit as you want.
- Choose between irrevocable and revocable: After you understand the ins and outs of your policy, you can begin to look at your situation and decide if you want a revocable or irrevocable beneficiary. Suppose you have a dependent and want to ensure they are covered for their entire life. In that case, you can make them irrevocable beneficiaries since you have no intention of removing them from the policy. If you plan on changing beneficiaries, revocable beneficiaries allow you to modify your policy whenever your needs change. It’s important to understand when a policyowner can change a revocable beneficiary, as this flexibility can be key in adapting to major life events like marriage, divorce, or the birth of a child.
- Designate primary and contingent: Once you choose the beneficiary type, you can decide who would be the primary and contingent beneficiaries (if you choose to have more than one person). The primary beneficiaries will receive the death benefit once you pass. However, if something happens to the primary beneficiaries, such as an early death, your contingent beneficiaries will receive the death benefit.
- Assign percentages of the death benefit: The final step in naming a beneficiary is to assign them the amount you wish them to receive. If you have one beneficiary, they will receive the entire death benefit. If multiple beneficiaries are named, you can decide how much of the death benefit goes to each individual. Remember that if you name an irrevocable beneficiary, you cannot remove them from the policy or change the amount of the death benefit they will receive without their approval.
Practical Steps for Changing a Beneficiary
- Request the change of beneficiary form. Once requested, the company will supply the necessary form to officially update your beneficiary designation.
- Complete the form. Complete the change of beneficiary form with the new beneficiary’s current address, relationship to you, full name, and any other required information.
- Ask permission for the change. Reach out to your beneficiary, indicating that you want to change the beneficiary from them to another individual. You may need their formal approval, such as a signature, to confirm they approve the change (this is only necessary if you have an irrevocable beneficiary).
- Return the form to your life insurance company. Once you have completed the form, you can return it to your insurance carrier, who will begin processing your request.
- Receive confirmation of the change. Your insurance carrier will notify you once your beneficiary change request has been approved or denied.
How to Decide Between Revocable and Irrevocable Beneficiaries
When changing your beneficiary, consider the financial implications for you and your beneficiaries and any other personal and family circumstances that may arise.
Financial Goals Consideration
When naming a beneficiary, one major factor is the financial plans for the individuals on your policy. If you think they will always need financial protection, then naming them an irrevocable beneficiary ensures they will get whatever funds you decide. If you feel your beneficiary might not need the funds later in life and may become financially independent, you could make them a revocable beneficiary. If tragedy strikes, they can get the death benefit; if not, then you still have the flexibility to modify your policy beneficiaries later in life. Suppose you decide later to change the beneficiary to a charity or another loved one who needs the financial support; since you named a revocable beneficiary, you can easily decide without needing approval.
Family and Personal Circumstances
Getting married and having kids could impact your beneficiary decision if you want your spouse and children to be beneficiaries of your policy. For instance, if you get a policy now and plan on getting married in the future, you might want to have a revocable beneficiary so that when the time comes, and you get married, you can change your existing beneficiary to your new spouse. Making your spouse or children an irrevocable beneficiary ensures they receive the death benefit, which cannot be changed. However, if you get divorced, changing a spouse who is an irrevocable beneficiary might be difficult since you would need their approval to make the change.
Tips for Avoiding Common Mistakes
If you are navigating life insurance policies and naming or changing beneficiaries, communicating with the existing beneficiaries and consulting with a financial and legal professional can help you avoid common pitfalls.
Communication with Beneficiaries
While it is required to communicate with irrevocable beneficiaries about any changes to the policy, it is not necessary for revocable beneficiaries. However, it is still a good idea to communicate with the beneficiaries so that they are aware if anything changes. If you want to change a revocable beneficiary who’s expecting to receive the death benefit and planning their finances around that future windfall, letting them know you plan on changing the beneficiary allows them to reevaluate their finances.
Legal and Professional Consultation
Whether you already have a life insurance policy or plan on getting a new one, consulting with legal and financial professionals ensures you fully understand the implications of your policy and adding beneficiaries. Doing so will prepare you for maintaining your policy and help plan out your future finances and those of your loved ones.
Glossary of Related Terms
Trust
A trust is a legal agreement where one party, the grantor, hands over their assets to a trustee so that the trustee can distribute the assets according to the grantor’s will when needed. This is especially beneficial with a life insurance policy if a policyowner wants their younger children to split the death benefit. Since the children are younger, they cannot manage the money, so the trustee is there to ensure that the children get the money just as the policyowner intended. Naming a trust as a beneficiary can guarantee that your money goes where you want it to after your death.
Contingent Beneficiary
A contingent beneficiary is an individual who will receive the death benefit for a life insurance policy if the primary beneficiary is unavailable. This beneficiary is a safeguard to ensure the death benefit is distributed according to the policyowner’s wishes. Since the primary beneficiary is first in line to receive the death benefit if it becomes unavailable, such as an early death or other cause, the contingent beneficiary will be the next to collect the death benefit.
Estate Planning
Estate planning is a process that manages an individual’s assets before death so that their assets can be distributed without many issues. This can include documents like wills and trusts, which are usually done with the help of a financial or legal professional to make sure everything runs smoothly. A life insurance policy can be considered an asset, so you must include it in your estate planning to ensure your assets are distributed as you wish.
Conclusion
Naming a beneficiary is a vital step in securing and managing your life insurance policy. It ensures that the death benefit is directed to the person or people you choose, offering financial support to your loved ones. Understanding when a policyowner can change a revocable beneficiary—and who has the right to change a revocable beneficiary—helps you make confident, informed decisions as your circumstances evolve. Speak with a financial professional for personalized guidance on naming or changing beneficiaries and whether it aligns with your long-term financial goals.
To learn more about beneficiaries, qualifying for a life settlement, or other aspects of your life insurance policy, reach out to a Coventry Direct expert today!
