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Life insurance is the only financial product that can immediately create an amount of money chosen in advance to be paid at the death of the insured.

The life insurance death benefit provides a lump sum to your family when you die. The money can be used for anything they want, including their living and education expenses. But to receive this money, they must be listed as beneficiaries on your policy.

There are two types of beneficiaries – revocable beneficiaries and irrevocable beneficiaries. If you designate someone as a revocable beneficiary, they can be removed from your policy. However, irrevocable beneficiaries can’t be removed from your policy without their consent.

What is a beneficiary?

A beneficiary is a person named by the life insurance policy holder, who will receive the death benefit. It can be a specific person, such as a spouse, or multiple people, such as children or grandchildren.

The beneficiary will receive the death benefit when you die as long as the policy is still active. For instance, a term life insurance policy is only for a set time. If you outlive a term life policy, your beneficiaries don’t receive death benefits.

Generally, a policyowner can change the beneficiary at any time by notifying the life insurance company. However, a policy owner may designate a beneficiary as irrevocable, which makes it much harder to remove the person from the policy.

What is an irrevocable beneficiary?

An irrevocable beneficiary designation can’t be changed without the beneficiary’s consent. In some states, the insurance company has to notify an irrevocable beneficiary if the policy has been canceled.

So, if you name someone an irrevocable beneficiary, that person will receive the death benefit — even if you later would rather remove that person from your policy.

In community property states, spouses are irrevocable beneficiaries if the policyholder purchased the policy after they got married. In those states, you need your spouse’s permission if you plan on naming someone else as the beneficiary.

Understanding irrevocable beneficiaries

Life insurance owned by a trust usually has the trust named as an irrevocable beneficiary to make sure the death benefit stays out of the insured’s estate.

Andrea B. Schanker, Esq., partner at Schanker and Hochberg P.C. says she uses an Irrevocable Trust to be the owner and beneficiary of life insurance policies. This method is most commonly used to exclude the death benefit from the taxable estate at time of death (for estate tax purposes whether that be state and/or federal). It’s also known as Irrevocable Life Insurance Trust or “ILIT.”

Schanker adds that other reasons to name an ILIT are to protect and manage the assets on behalf of the named beneficiary or beneficiaries once the death benefit payout is released.

That’s especially vital for minors and beneficiaries with special needs.

“This is also important for those beneficiaries who may be adults but are not capable of managing the assets on their own for a variety of reasons,” Schanker adds.

Irrevocable beneficiaries are guaranteed to receive their share of the proceeds. For example, a policyowner might want to name their children as irrevocable beneficiaries if they’re in a second marriage.

Benefits of listing an irrevocable beneficiary

There are a few reasons why you want an irrevocable beneficiary. Here are three:

  • Asset protection
  • Keep assets out of the estate when used with an ILIT
  • Guarantees beneficiary won’t be changed

What is a revocable beneficiary?

The other option is a revocable beneficiary. This is the default and all beneficiaries are revocable unless they are specifically named as irrevocable.

A revocable beneficiary can be changed or removed at any time by the policy owner without the consent of the beneficiary.

The policyowner simply has to notify the insurance company in writing of the change.

Revocable vs. irrevocable life insurance beneficiary

Here’s how revocable and irrevocable beneficiaries compare:

Policy detailsRevocable beneficiaryIrrevocable beneficiary
BeneficiariesCan be changed or removed at any timeCan’t be removed without written consent of beneficiary
Policy transactions and changesDetermined by policy ownerMay require written consent of beneficiary
Policy cancellationAt discretion of ownerCompany may be required to notify beneficiary

Frequently Asked Questions

What happens to an irrevocable trust when the beneficiary dies?

Irrevocable trusts are governed by the provisions in the trust document. The trust will generally contain provisions for contingent beneficiaries.

Who can be the beneficiary of an irrevocable trust?

Beneficiaries are named by the provisions of the trust. Beneficiaries are usually family members or charitable organizations.

When should you choose irrevocable beneficiaries?

Choosing an irrevocable beneficiary protects the person from being removed from the life insurance policy later. Instead, that person must agree to get removed from the policy.

Going this route gives your beneficiary more protection.

Can an irrevocable beneficiary be changed?

Irrevocable beneficiaries can only be changed with their consent.

Meanwhile, revocable beneficiaries can be changed or removed at any time.