Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insur...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Feb 9, 2022

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The Brief

  • If you’re a beneficiary, you’ll receive death benefits from the policyholder
  • As a beneficiary, you won’t pay taxes from death benefits
  • A person can list multiple beneficiaries on their life insurance policy

Were you named as a beneficiary of a life insurance policy? If you’re a beneficiary, that means you’ll receive benefits from a person who has a life insurance policy or a retirement fund.

But what is a life insurance beneficiary, and what are retirement beneficiaries? Don’t worry — we’ll answer these frequently asked questions.

Our article explains how you can add beneficiaries to a life insurance policy, the role of the primary beneficiary, and what benefits are provided to life insurance beneficiaries.

We’ll also explore sample life insurance rates to give you an idea of how much life insurance costs per month.

Continue reading to learn more about beneficiaries of a life insurance policy. Use our free online quote tool to compare multiple insurance companies near you if you’re ready to obtain quotes right now.

What does it mean if I am a beneficiary of a life insurance policy?

The person who receives financial protection from a life insurance plan is called a beneficiary. Beneficiaries are chosen by people who purchase life insurance policies, otherwise known as policyholders.

When a policyholder passes away, the death benefits are provided to beneficiaries listed on the life insurance policy. Individuals who aren’t named in the life insurance policy as beneficiaries may not receive death benefits.

What is the difference between a primary and a contingent life insurance beneficiary?

A primary beneficiary is a person, organization, or entity that receives death benefits upon the passing of the policyholder. Beneficiaries can be identified by their full names and social security numbers (SSN).

All other beneficiaries that are listed after primary beneficiaries are known as contingent beneficiaries. In other words, contingent beneficiaries are next in line to receive death benefits if the primary beneficiaries can’t claim them.

What are revocable and irrevocable life insurance beneficiaries?

A revocable beneficiary is a person, entity, or business partner that can be removed as a beneficiary from your life insurance policy.

But irrevocable beneficiaries are individuals, organizations, or other entities that cannot be removed from a life insurance beneficiary list, without the consent of the current beneficiary.

What happens to a life insurance policy if there is no beneficiary?

If a beneficiary isn’t listed on the life insurance policy, the death benefits will go toward the policyholder’s estate.

For example, if a person passes away before naming a beneficiary, the policyholder’s spouse, domestic partner, or children will receive the death benefits.

If a policyholder doesn’t have a spouse, domestic partner, or children, death benefits could be released to extended family or absorbed by the state as unclaimed funds.

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What does life insurance cover?

Life insurance covers expenses and debts after a person passes away. For instance, life insurance policies can compensate burial and funeral expenses in addition to any debts left behind by the policyholder.

Beneficiaries also receive death benefits equal to the coverage amount that was issued at the start of the policy. However, some life insurance policy limits are reduced because of final expenses.

Some life insurance policies even allow you to use insurance benefits while you’re alive. Permanent life insurance policies, such as whole life insurance, enable you to borrow money against your death benefits.

Whole life insurance also accumulates cash over time. You can protect your accumulated cash value with a life insurance rider which ensures that your account transfers to your beneficiaries after you pass away.

Who should I choose as a beneficiary?

You can select anyone that you desire as a beneficiary. We recommend choosing the individuals who are closest to you.

Here is a list of people and entities that you may want to consider:

  • Your spouse
  • Your domestic partner
  • Your children
  • Your extended family
  • Your friends
  • A parent or legal guardian
  • Your business partner
  • An organization (your business or nonprofit)
  • A charity
  • Multiple beneficiaries

You can also name a funeral home as a beneficiary. Some life insurance policies are designed to provide death benefits to funeral homes to ensure that burial costs are covered.

Do I have to pay taxes on life insurance payouts?

No, you don’t. According to the Internal Revenue Service (IRS), any life insurance benefits you receive aren’t included in your gross income. But any interest you receive from the death benefits is taxable and part of your gross income.

For example, permanent life insurance policies with accumulated cash value riders and interest on death benefits may be taxable income.

How much are life insurance rates?

Life insurance quotes are just as unpredictable as auto insurance estimates, but there is a way to secure affordable life insurance. Fortunately, you don’t have to scour the web for the average rates because we’ve researched them for you.

Let’s examine the average life insurance rates for smokers and non-smokers.

Average Monthly Term vs. Whole Life Insurance Rates
Policyholder Age & Tobacco UseAverage Monthly Term Rates: MaleAverage Monthly Term Rates: FemaleAverage Monthly Whole Rates: MaleAverage Monthly Whole Rates: Female
25-Year-Old Non-Smoker$15$13$94$85
35-Year-Old Non-Smoker$15$14$128$113
45-Year-Old Non-Smoker$22$20$191$243
55-Year-Old Non-Smoker$44$34$295$422
65-Year-Old Non-Smoker$106$73$528$204
Average Annual Rates for Non-Smokers$40$186$247$204
25-Year-Old Smoker$27$21$116$107
35-Year-Old Smoker$30$24$157$146
45-Year-Old Smoker$53$41$224$206
55-Year-Old Smoker$114$83$350$321
65-Year-Old Smoker$270$186$600$204
Average Annual Rates for Smokers$99$71$289$253
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Term life insurance is less expensive than whole life insurance. In addition, term life insurance is much more affordable than permanent life insurance.

But term life insurance policies don’t have the same benefits as whole life and variable life insurance. The best life insurance policy depends on your needs.

What is a retirement beneficiary?

Retirement beneficiaries are similar to life insurance beneficiaries, except death benefits derive from a retirement account, such as a 401K or an IRA. Your retirement savings company allows you to add beneficiaries like any other life insurance policy.

Any money you receive shouldn’t be taxable, but you should speak with a tax expert to learn more about the accumulated interest that you may receive.

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Beneficiaries of a Life Insurance Policy: The Bottom Line

If you are named as a beneficiary of a life insurance policy, you will receive death benefits from the policyholder. However, you won’t receive any life insurance payouts if you were removed as a beneficiary from a life insurance policy.

Anyone who wants to maximize the benefits of a life insurance policy should acquire permanent life insurance, but you’ll pay more for coverage. We recommend that you target affordable life insurance policies that provide the benefits you need.

Now that you know about the beneficiaries of a life insurance policy, enter your ZIP code into the free comparison tool below to estimate multiple insurance companies in your area.