What Is an Irrevocable Beneficiary?

ByJulija A.
May 17, 2022

It’s common to specify beneficiaries when you take out a life insurance policy. Life insurance is a plan that provides a payout when you die. If you have a policy, the beneficiary of your life insurance plan will receive a sum of money when you pass away. Experts recommend life insurance for all adults, particularly for people who have families and dependents. 

There are two main types of beneficiaries: revocable and irrevocable beneficiaries. When you apply for a life insurance policy, you have the option to name a beneficiary. The beneficiary is the person who will receive the payout. You can name an individual, more than one person, or an organization or an institution, for example, a hospital or a charity. 

In this guide, we’ll discuss and define the different types of beneficiaries and provide advice for those who are thinking about taking out life insurance or updating their policy to include an irrevocable beneficiary. 

What Is an Irrevocable Beneficiary?

Before you apply for life insurance or change your beneficiaries, it’s important to understand the meaning of irrevocable beneficiary. There are two types of beneficiaries you can name when you take out a life insurance policy: these are revocable and irrevocable beneficiaries. 

  • Irrevocable beneficiaries

Irrevocable beneficiaries have the rights to your life insurance payout and cannot be removed from your policy without their consent. The terms of the contract dictate that the individual will still have legal rights to your life insurance funds even if you wish to remove them as a beneficiary. The most common reason to name an irrevocable beneficiary on your policy is if you have a child. This ensures that your child or children will receive the death payout in the worst-case scenario. 

In some states, it’s possible for irrevocable beneficiaries to adjust the policyholder’s life insurance plan. If you want to make changes to your policy, they must be agreed upon by the irrevocable beneficiary. 

It is possible to remove irrevocable beneficiaries from a life insurance policy, but only if the beneficiary agrees to forfeit their rights to your insurance payout. This is often a complex process that requires legal expertise. 

  • Revocable beneficiaries

Revocable beneficiaries do not have full rights to your life insurance payout and can be removed as a beneficiary of the policy at any time without notification. You can designate revocable beneficiaries and change your mind if your circumstances change. Perhaps the most common example is making your spouse a revocable beneficiary in case you split up. 

Irrevocable Beneficiaries Versus Revocable Beneficiaries

If you’re taking out life insurance, it’s wise to think about whether you want to name revocable or irrevocable beneficiaries. If you have a life insurance policy and you die before the end of the term, the beneficiary or beneficiaries you name will receive the payout. 

The main difference between irrevocable and revocable beneficiaries is that irrevocable beneficiaries cannot be taken off your policy unless they agree to it. Removing an irrevocable beneficiary from your policy is complex, time-consuming, and involves potentially costly legal processes. If you have revocable beneficiaries, you can change the beneficiary or beneficiaries without their consent and you don’t need to have a reason to remove them from your policy. 

In some states, it is legal for irrevocable beneficiaries to have the power to make adjustments to your life insurance policy. If you wanted to cancel the plan, for example, you may have to get the permission of the irrevocable beneficiary to do this. 

How Irrevocable Beneficiaries Work

If a life insurance policy has an irrevocable beneficiary designation, the named beneficiary will have full rights to the policy payout if the policyholder passes away. It is essential to understand irrevocable beneficiary rights before you name your beneficiaries and decide whether they will be deemed revocable or irrevocable. You have the option to name your beneficiaries when you take out a life insurance policy. You can name more than one person, and you can decide whether or not your beneficiary or beneficiaries will be irrevocable. 

If you do decide to designate an irrevocable beneficiary, you will not be able to remove them from your policy unless they agree to give up the rights to your plan. This requires legal action. 

Why Would I Name an Irrevocable Beneficiary?

Most commonly, people who take out life insurance name their children as irrevocable beneficiaries. Choosing to designate a child an irrevocable beneficiary ensures that they will benefit financially if you die, even if your circumstances change, for example, you get divorced or remarry. Naming your child as an irrevocable beneficiary can provide peace of mind that the child will be supported after you pass. If you were to remarry, your new spouse would not have the power to change your policy unless you also named them as an irrevocable beneficiary. 

The Advantages of Revocable Beneficiaries

Naming irrevocable beneficiaries can provide peace of mind if you want to provide for a child or a parent, but there are risks. If you are married, for example, and you name your spouse as an irrevocable beneficiary, they would legally still have rights to your life insurance payout even if you were to split up.

The main advantage of revocable beneficiaries is that they give the policyholder more flexibility and control. You can change your policy and remove revocable beneficiaries without needing to seek permission or give reasons. It is much easier and quicker to change your beneficiaries if you have revocable beneficiaries.

Contingent Beneficiaries vs. Irrevocable Beneficiaries

If you’ve been researching life insurance, you may have come across the term ‘contingent beneficiary.’ A contingent beneficiary is not the same as an irrevocable or revocable beneficiary. This is an additional beneficiary whom you can name after designating your primary beneficiary or beneficiaries. 

The primary beneficiary will receive the payout if the policyholder dies. However, if the primary beneficiary dies before the policyholder or at the same time, the contingent beneficiary will receive the death benefit. A contingent beneficiary can be revocable or irrevocable. As the policyholder, you decide how much of the payout goes to each beneficiary if you have more than one. 

Deciding Whether to Add Revocable or Irrevocable Primary Beneficiaries

Nobody wants to think about what will happen when they die, but taking out life insurance can provide peace of mind that your family will be supported financially when you pass away. If you’re currently looking at policies or are thinking about making changes to an existing policy, you may be wondering whether to add a revocable or irrevocable primary beneficiary. The primary beneficiary is essentially the first choice; this is the person or people you want to benefit from your policy payout. If something happens to your primary beneficiary, the contingent beneficiary or beneficiaries will receive the payout. 

Once you’ve decided who you want to designate as a primary beneficiary, you’ll need to decide whether to make them a revocable or irrevocable beneficiary. Revocable beneficiaries can be removed from your policy at any time and they do not have full rights to your policy. Irrevocable beneficiaries cannot be removed without forfeiting their legal rights and they can be involved in making changes to the policy. 

In most cases, a parent will choose to make their child or children primary irrevocable beneficiaries. This ensures that the children are protected financially. Many people choose to make their spouses or partners revocable beneficiaries. This means that they will receive money if they are still listed as beneficiaries, but the policyholder retains control over the plan. If the couple splits, the policyholder can easily remove a revocable beneficiary.

FAQ

How Often Should I Review My Beneficiaries?

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Life can change in an instant, so it’s worth regularly reviewing your life insurance policy and thinking about who you want to keep as beneficiaries if you have revocable beneficiaries. Many people change their minds and update beneficiaries in line with changes in their circumstances, for example, having children or getting a divorce. Ideally, you should review your beneficiaries once a year. 

How Do You Know if a Beneficiary Is Irrevocable?

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If you choose to take out a life insurance policy, you’ll be asked to name beneficiaries and decide whether they are revocable or irrevocable. You have the power to decide whether to make a beneficiary irrevocable. You can check the details of your policy and its beneficiaries with your life insurance provider. 

Why Would You Make a Beneficiary Irrevocable?

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In most cases, people choose to have irrevocable beneficiaries when they have children. If you have a child, and you name them as an irrevocable beneficiary, this provides peace of mind that they will benefit from your insurance payout even if your circumstances change, for example, you break up with their other parent or you remarry. If the child is an irrevocable beneficiary, neither your ex-spouse nor your new partner would be able to prevent them from accessing the money. 

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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