What Is a Beneficiary?

Updated on April 5, 2022

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Definition

A beneficiary is the person(s) or entity that you designate to receive assets after your death. If you don't name a beneficiary, your assets will go to the person designated next in line by your state or by the institution that holds those assets.

Key Takeaways

A beneficiary is someone (or another entity) who receives assets at your death, as you designate on certain types of accounts or insurance policies.
It is important to review your beneficiary designations after major life events to keep your wishes up to date.
Special rules surround minor beneficiaries, due to restrictions on contractual agreements and what kind of property they can legally own.
A primary beneficiary is the account owner’s first choice for a beneficiary, while contingent beneficiaries serve as back-up.

Definition and Example of a Beneficiary

A beneficiary is someone who receives assets at your death, such as a death benefit from a life insurance policy. For example, you'll probably be asked to select a beneficiary if you have one of these kinds of accounts:

Annuity contracts
Individual retirement accounts (IRAs), 401(k)s, or other retirement accounts
Life insurance policies
Pension benefits

Note

Your beneficiary instructions can be separate from any last wishes you express orally or in your will.

How a Beneficiary Works

When you open a financial account that will exist after your death, you will usually be asked to designate a beneficiary. This designation is included as part of the paperwork for that account.

A beneficiary designation usually supersedes (or overpowers) the instructions in a will, so the will only applies to assets that do not have a named beneficiary.

Beneficiary designations should be reviewed regularly, especially after major life events such as:

Marriage
Divorce
Birth of a child
Death of a spouse, partner, or a beneficiary you have already designated

Any major event in your life or that of your beneficiary can create changes that impact you or your beneficiary. You may need to alter your designations to reflect these changes and ensure that the correct person receives your assets after your death.

There are some cases in which a new beneficiary cannot be named. These include irrevocable trusts or divorce agreements made with certain terms.

Minors Beneficiaries

Generally, minors are not allowed to enter contracts and can't legally own property in their own name. That prevents them from owning certain types of accounts, such as a retirement account, or receiving your life insurance payout themselves. However, there are ways to ensure that money goes to a minor or is spent for their benefit. One way to designate a minor as a beneficiary is to create a living trust and assign a custodian, who will act in the best interest of the child. You can also designate the child's parent or guardian as the beneficiary instead.

Social Security Beneficiaries

You will also need to designate a beneficiary if you receive Social Security benefits.

Types of Social Security Beneficiaries
Type of Benefit	Allowed Beneficiaries
Retired worker and auxiliary beneficiaries	Spouse* of a retired worker
	Child of a retired worker
Survivor benefits	Child of a deceased worker
	Widow(er) age 60 or older
	Widow(er) under age 60 with a minor or disabled child living at home
	Disabled widow(er) age 50 or older
	Dependent parent of a deceased worker
Disabled worker and auxiliary beneficiaries	Spouse* of a disabled worker
	Child of a disabled worker

*Also applies to a divorced spouse if the marriage lasted at least 10 years

To qualify as a beneficiary in these cases, a child must meet one of three conditions:

Minor child under age 18
Adult child disabled before age 22
High-school student under age 19

Do I Need a Beneficiary?

There are several reasons for choosing a beneficiary to receive your assets after you die.

Clarity

By assigning a beneficiary, you make it clear who should receive your assets in the event of your death. Doing so eliminates any questions or disputes among remaining family members and friends who might argue that you would have wanted somebody else to receive the assets.

Note

Never assume that you know how your assets will be distributed. Different financial institutions use different approaches, and they might default to a certain option, even if you don’t request it on a beneficiary designation form.

Speed

Choosing a beneficiary speeds up the process of distributing assets after your death. It can be faster and easier to claim assets as a beneficiary rather than waiting for the probate process to be completed.

A named beneficiary can typically claim assets as soon as the death is documented, usually by providing documents such as a death certificate and affidavit of domicile.

Types of Beneficiaries

There are two basic types of beneficiaries: primary and contingent.

Primary

A primary beneficiary is the account owner’s first choice for a beneficiary. In the event of death, the benefits go to the primary beneficiary, if still living.

Note

You can have multiple primary beneficiaries in some cases. For example, you could have three primary beneficiaries, each of whom would receive 33.3% of assets.

Contingent

Contingent beneficiaries are used as a backup in the event that there are no living primary beneficiaries or if they cannot be found.

For example, suppose an account owner picks his wife as the primary beneficiary. She would receive all assets at his death. However, if the husband and wife both die at the same time in an auto accident, there is no living primary beneficiary. As a result, assets would go to a contingent beneficiary, if any.

If there is no contingent beneficiary, or when none of the contingent beneficiaries claims the assets, then either state law or the policies of the organization holding the account will dictate what happens to the assets.

Other Options

There are also other ways of naming beneficiaries within these two main groupings. You could:

Name an organization or entity as your beneficiary, rather than a single person.
Designate that assets be distributed "per stirpes," indicating that if the beneficiary were to die before you, their children would become the beneficiaries.
Decide that the assets should be distributed "per capita," or divided equally among the beneficiaries upon your death.

Especially when considering children, multiple generations, or the possibility that beneficiaries may predecease you, it’s essential to understand how beneficiary designations work and what your options are.

Speak with your financial planner or estate planning attorney to make sure you're recording your wishes properly.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Pension Benefit Guarantee Corporation. "Designate a Beneficiary."
Insurance Information Institute." What Is a Beneficiary?"
United States Office of Personnel Management. "Life Insurance: Designating a Beneficiary."
Securian Financial. "Naming a Beneficiary: What You Need to Know."
Haven Life. "How to Name a Child as a Life Insurance Beneficiary."
U.S. Department of Veterans Affairs. "Life Insurance: Designation of Beneficiaries Who Are Minors."
Social Security Administration. "Types Of Beneficiaries."
Fidelity. "Settling the Estate: Probate."
United Way. "What Is a Beneficiary Designation?"