Why Is The Beneficiary Clause So Important For Life Insurance?

Click the photo to read the language more easily

After 25 years of being an insurance agent, I still have people falter when we come to the beneficiary section of the life insurance application.  It never ceases to amaze me.  It seems that at least one out of three applications I do, when I ask, “Who do you want to name as beneficiary?,” I am told, “I have not thought of that.”

Life insurance can be use very successfully to pay off bills that you leave behind and create a pool of money for your loved ones.  In order to do that, you need to be very specific about your beneficiary when you submit your application.   If you are not, bad things can happen.


A common misunderstanding about life insurance is that the benefit automatically becomes part of your will and will be distributed according to your instructions during probate.

That is not always the case.  Your life insurance proceeds only enter probate if you fail to name a beneficiary or name your estate as beneficiary.  If you name an individual, business or charity as beneficiary, they will get the money.

If your benefits go into the probate process, the pool of money you wanted to leave to your wife and children can be depleted by creditors, lawyers and courts.

In most states life insurance benefits by-pass probate if they are left to a named beneficiary.  If you want to assure that all of your money goes to who you want, make certain that you keep the beneficiary portion of your life insurance up to date.  The graphic above lists some of the ways in which you can leave your life insurance benefits.


Another common problem with life insurance is that people fail to name a Secondary Beneficiary.  This is the person who will get the money if the Primary Beneficiary is dead.

For example, if you were to name your brother as Primary Beneficiary and ignore the Secondary Beneficiary you could create a problem if your brother were to die before you.

In that case, when you die, the life insurance benefits would be paid to your brother’s estate.  Your niece and nephews could end up with the money that you wanted to give your children.


The conclusion is that before you apply for any life insurance, you need to decide why you are getting the life insurance in the first place.  You also need to determine who you want to get the money after you die.

As the events in your life, (e.g. marriages, divorces, births and deaths) you need to review how your beneficiary clauses read on your life insurance policies.  If circumstances require you to make an adjustment, contact your life insurance company.  A few minutes of your time while you are alive, can save your loved ones hours of time and attorney’s fees in the future.