What is an Irrevocable Beneficiary?
An irrevocable beneficiary is a beneficiary that, once named by the policy owner, cannot be removed from the policy without that beneficiary’s consent. The policy owner may need to get the irrevocable beneficiary’s approval to cancel or make changes to the policy, as well.
Understanding beneficiaries
When someone buys life insurance, one of the primary decisions they need to make centers around who will get the policy payout when the insured dies. The person, people, or entity (like a charity) that gets the policy benefit is called a beneficiary.
A policy can have a single beneficiary or multiple beneficiaries. If more than one beneficiary is named, the policy owner designates how the money gets distributed. When naming two beneficiaries, for example, they may specify that each gets 50% of the death benefit.
Once the beneficiaries receive the payout from the life insurance company, they can use that money however they want. Many beneficiaries use a portion to cover funeral expenses for the insured, but the remaining amount can be distributed as they see fit, e.g., to mortgage payments, tuition costs for their children, etc.
Irrevocable vs. revocable beneficiaries
When specifying a beneficiary, the policy owner can choose whether that beneficiary will be irrevocable or revocable. A revocable beneficiary can be changed by the policy owner at a later date and doesn’t get any control over the policy.
An irrevocable beneficiary, on the other hand, cannot be removed from the policy, nor can their share of the death benefit be negotiated, without their written consent. In many cases, the policy owner will need their approval to modify the policy (e.g., increase or decrease the death benefit) or cancel coverage, too.
Some states specify that irrevocable beneficiaries only have control over their share of the policy benefit, while other states give them power over the policy terms in their entirety.
In other words, the policy owner will probably need the irrevocable beneficiary’s signature on the vast majority of changes they want to make. By naming that beneficiary irrevocably, they give that individual or entity a large measure of control over the coverage.
Why you might choose an irrevocable beneficiary
With less flexibility, you might be wondering why people would opt for irrevocable rather than revocable beneficiaries.
In some cases, they have no choice. A court might order someone to name their ex-spouse as an irrevocable beneficiary during divorce proceedings, for example. This most commonly occurs when the pair separating has children together.
You also might name yourself an irrevocable beneficiary if you’re buying life insurance on someone else.
Finally, an irrevocable beneficiary can give you the ability to rest easy knowing the policy benefits will go precisely where you want them. It essentially guarantees that the irrevocable beneficiary you name will get the money you want them to, regardless of any challenges in court. This can be helpful with blended families or after multiple marriages.
