How to Name Life Insurance Beneficiaries Correctly and Avoid Costly Mistakes

Beneficiary Designations Override Your Will

Your life insurance beneficiary designation is the controlling document — it overrides your will. If your will says your life insurance goes to your sister but the policy still names your ex-spouse, your ex gets the money. Courts uphold this consistently even when the policyholder clearly intended to change the beneficiary but never filed the paperwork. Your designations must be correct, current, and reviewed regularly.

Primary and Contingent Beneficiaries

Always name both. The primary receives the death benefit. The contingent receives it only if the primary has already died. Without a contingent, the benefit goes to your estate if the primary predeceases you — subjecting it to probate, creditor claims, and potential taxes that a properly designated beneficiary avoids entirely.

Name multiple primary beneficiaries with specific percentages — 50 percent to spouse, 25 percent to each of two children. Name multiple contingents similarly. The more specific your designations, the less room for dispute. Use full legal names with dates of birth or Social Security numbers. Avoid vague language like my children or my estate.

Common Mistakes

Naming minor children directly creates legal complications. Minors cannot receive insurance proceeds. The court appoints a guardian of the estate — a costly process that may not select who you would have chosen. Instead, name a trust as beneficiary or designate an adult custodian under your state’s Uniform Transfers to Minors Act.

Failing to update after life events is the most common and costly mistake. In many states, divorce does not automatically remove an ex-spouse as beneficiary. If you remarry but never update your designation from your first spouse, your first spouse gets the money. Review and update after every marriage, divorce, birth, death, or estrangement.

Per Stirpes vs Per Capita

Per stirpes means a deceased beneficiary’s share passes to their descendants. Per capita means it divides among surviving beneficiaries. If you name three children equally and one predeceases you with two kids of their own: per stirpes gives the deceased child’s third to those grandchildren. Per capita splits everything between the two surviving children, grandchildren get nothing. Specify which you intend.

Trusts as Beneficiaries

Naming a trust provides control over distribution — funds used for education, distributed at certain ages, managed by a professional trustee, protected from beneficiaries’ creditors. An irrevocable life insurance trust removes the policy from your taxable estate, saving significant estate taxes for high-net-worth individuals. Work with an attorney to set up trust-based arrangements properly.