How do beneficiaries and life insurance payouts work?

This answer is about Beneficiary.

Primary and contingent beneficiaries

The primary beneficiary is first in line. If no primary beneficiary is living when the insured dies, the contingent (or 'secondary') beneficiary receives the proceeds. You can name multiple beneficiaries and assign percentages that add up to 100%.

Per stirpes vs. per capita

• Per stirpes — if a beneficiary predeceases you, their share passes to their descendants.
• Per capita — the share is split only among the surviving named beneficiaries.

Revocable vs. irrevocable

Most beneficiary designations are revocable: you can change them at any time. An irrevocable beneficiary must consent to changes, cash withdrawals, or policy loans. Irrevocable designations show up in divorce settlements, business agreements, and some trust arrangements.

Payout options

• Lump sum — the most common option; usually federal income-tax-free to the beneficiary.
• Interest-only — insurer holds the principal and pays interest to the beneficiary (interest is taxable).
• Fixed period or fixed amount — payments over a set period or in a set amount until funds are exhausted.
• Life annuity — guaranteed income for the beneficiary's life.

Filing a claim

The beneficiary contacts the insurer, submits a claim form and a certified death certificate, and — for straightforward cases — is typically paid within a few weeks (state law and insurer processes vary). During the contestability period (typically the first two years, confirm), the insurer may investigate application statements before paying.

Lost policies

If you believe a deceased family member had life insurance but you can't find the policy, the NAIC Life Insurance Policy Locator is a free service that searches participating insurers for policies naming the deceased.

Beneficiary designations generally control who gets the death benefit — regardless of what your will says. Review designations after marriage, divorce, births, and deaths.