Revocable Beneficiary
Candlefocus EditorThis type of beneficiary is most commonly used when setting up a life insurance policy and typically involves relatives or close acquaintances of the policy holder. Selecting a revocable beneficiary ensures that the policy owner maintains the right to make changes to the policy, such as switching the primary beneficiary or changing the benefits payout amount without consulting or involving the revocable beneficiary.
The policy owner can periodically review the beneficiaries listed on the policy to ensure that the selected individual or organization is still the best possible choice once the policy owner is no longer alive or able to make decisions. Making changes to the policy is not a unilateral decision as the revocable beneficiary could still have a claim to the policy's proceeds if the owner did not mimic the changes in a will, for instance.
The alternative to revocable beneficiaries is an irrevocable beneficiary, which does have guaranteed right to the proceeds of the policy. An irrevocable designation can only be modified or revoked by consent of the appointed beneficiary, making this arrangement mostly used in situations involving trusts.
When deciding between a revocable or irrevocable beneficiary, policy holders should consider their current and future needs. Revocable beneficiaries are typically more beneficial for those who need maximum flexibility, for instance those who may want to make changes to their life policy but don’t have a fixed or permanent trust in mind. Irrevocable beneficiaries are best for those who need a more permanent arrangement, often involving trusts.
In any situation, policy holders should consult an experienced lawyer before settling on an arrangement as the beneficiary is an important component of life insurance. It is also important to remember that revocable beneficiaries may still have a legal case to the proceeds even if they are removed from the policy, so policy holders should update their estate plans and wills to mimic any changes made to the life policy beneficiaries.