Beneficiaries and Life Insurance: Common Mistakes to Avoid

*Updated November 25th, 2025

When you take out a life insurance policy, one of the most important decisions you’ll make is choosing a beneficiary—that’s the person (or people) who will receive the death benefit payout when you pass away.

Seems simple enough, right? But surprisingly, a lot of people make mistakes with this step, and those slip-ups can lead to confusion, delays, or even the money going to someone they never intended. Clear life insurance beneficiary rules help, but you still need to set things up correctly.

Whether it’s forgetting to update your beneficiary after a major life event or accidentally naming a minor without the proper setup, these errors can cause big headaches down the line.

In this article, we’ll break down the most common mistakes people make when it comes to life insurance beneficiaries—and how to avoid them—so you can be confident your life insurance policy beneficiary is set up to do exactly what you want it to when the life insurance policyholder passes away.

Mistake #1: Not Naming a Beneficiary

One of the easiest mistakes to make with life insurance policies is also one of the most serious: not naming a beneficiary at all. It might seem like a small oversight, especially when you’re focused on picking the right coverage or figuring out your life policy amount—but skipping this step can create major complications for your loved ones down the road.

When there’s no beneficiary listed, your life insurance payout doesn’t just magically go to your family. Instead, it typically gets funneled into your estate and may have to go through probate. That means legal delays, possible court fees, and the chance that the money won’t be distributed the way you intended. The whole point of life insurance is to provide quick financial support to the people you care about—and skipping the beneficiary line defeats that purpose.

To make sure your life insurance benefits work the way they’re supposed to, you should always designate at least one primary beneficiary—the person who gets the money first—and one or more contingent beneficiary options in case your primary isn’t around to receive the death benefit. It’s a simple way to keep things smooth, stress-free, and out of the court system.

Mistake #2: Failing to Update Beneficiaries After Major Life Events

Life happens—and when it does, your life insurance policies should reflect those changes. One of the most common mistakes people make is forgetting to update their beneficiaries after a major life event. Got married? Had a baby? Went through a divorce? These are all moments when you should hit pause and take another look at your beneficiary designation.

You’d be surprised how often people leave an ex-spouse as the beneficiary just because they forgot to change your beneficiary. Or they add a new child to the family but never update the policy to include them. In some sad cases, someone passes away and the listed primary beneficiary is also deceased, which can delay the payout or send it through probate.

A good rule of thumb? Review your beneficiaries for life insurance at least once a year—or any time something big happens in your personal life. It takes just a few minutes, but it can save your loved ones from a lot of stress and confusion later on. Think of it like updating your emergency contacts—just one of those tasks that pays off in the long run.

Mistake #3: Naming a Minor as a Direct Beneficiary

It’s totally natural to want your life insurance money to go to your kids if something happens to you—but naming minor children (anyone under 18 in most states) as a direct beneficiary can actually cause a lot of unintended headaches. Why? Because minors legally can’t receive the death benefit on their own. If you pass away and your child is listed as the beneficiary, the insurance company can’t just cut them a check.

What happens instead? The court steps in and appoints a guardian to manage the life insurance proceeds until your child turns 18. That process can be time-consuming, expensive, and may not result in someone you would’ve chosen handling those funds.

A better move is to designate a beneficiary that’s either a trust or a trusted adult. You can set up a trust and name a beneficiary by listing the trust as the beneficiary on a life insurance policy. That way, you control who manages the money and how it’s used—whether it’s for school, daily expenses, or future milestones. Another option is to name a trusted adult as the custodian or guardian, though this gives them more control over how the money is handled.

Both options have pros and cons. A trust gives you more structure and legal protection but involves some upfront legal work and potential costs. Naming a guardian is simpler but comes with fewer safeguards. Either way, it’s way better than leaving things up to the court.

Bottom line: If you want to protect your child’s financial future, make sure you have a solid plan in place that goes beyond just writing their name as a beneficiary on your life insurance policy.

Mistake #4: Not Being Specific Enough with Your Beneficiary Designations

When it comes to naming your life insurance beneficiaries, clarity is everything. A common mistake people make is being way too vague—like writing “my children” or “my family” on the designation form. While that might seem straightforward to you, it can actually open the door to confusion, disputes, and even legal battles after you’re gone.

Here’s why: If you just say “my children,” does that mean only biological children? Stepchildren? Adopted kids? What if a child was born after the policy was written? And “my family”? That could mean your spouse, siblings, parents—who knows? When it’s not spelled out clearly, life insurance companies and courts are left to interpret what you meant, which is not the situation you want your loved ones dealing with.

To keep things simple and avoid any mess, always list full legal names of your beneficiaries—first, middle, and last. It also helps to include their relationship to you (e.g., “John Smith, my son”) and, in some cases, their birthdate or Social Security number to avoid confusion with people who have similar names.

Being specific now makes sure the death benefit will be paid exactly where you want it later. It’s a small step that can save your family a lot of stress and potential heartache down the road.

Mistake #5: Overlooking the Impact of Taxes and Estate Planning on Your Life Insurance Beneficiaries

Life insurance is often seen as a straightforward way to provide for your loved ones—but when you don’t consider how it fits into your overall estate plan, things can get messy. A common mistake? Thinking your life insurance policy beneficiary exists in its own little bubble. In reality, who you designate as your beneficiary can have a big impact on taxes and how your assets are distributed.

In most cases, life insurance death benefit payouts are tax-free for your beneficiaries. But there are exceptions—like if your estate is the beneficiary or if your policy pushes the total value of your estate over the federal or state estate tax threshold. That’s when Uncle Sam might want a piece of the pie, and the death benefit may be partially reduced.

Also, people sometimes forget that life insurance bypasses your will entirely. So even if your will says one thing, the person or people or entities listed as beneficiaries on your policy get the money—no matter what. That’s why it’s so important to make sure your will and your beneficiary designation are working together, not contradicting each other.

The best move? Chat with an estate planner or financial advisor to make sure your life insurance coverage lines up with your overall wishes. Coordinating your life insurance with the rest of your assets ensures your beneficiaries get what you intended—without surprises, delays, or unexpected tax bills.

Mistake #6: Relying Only on a Will to Distribute Life Insurance Benefits

A lot of people assume that their will is the ultimate say when it comes to who gets what—but that’s not how life insurance works. One of the biggest misunderstandings is thinking your will controls your life insurance payout.

Life insurance policies come with their own built-in instructions: the beneficiaries named in your policy. That little piece of paper (or digital form) overrides anything you’ve written in your will. The beneficiary is the person or entity designated in your policy to receive the death benefit payout.

That’s why it’s super important to keep both your will and your beneficiaries for life insurance updated and in sync. They need to work together, not contradict each other. If they’re out of alignment, it can lead to hurt feelings, family disputes, or money ending up in the wrong hands.

The fix is simple: any time you update your will—or go through a major life change—take a few minutes to double-check the beneficiary information on your life insurance policies too. Keeping everything current and consistent is the best way to make sure your wishes are honored exactly how you intended.

Mistake #7: Ignoring Contingent Beneficiaries

Here’s a scenario a lot of people don’t think about: what happens if your primary beneficiary dies before you, or isn’t able to receive the payout? It could be due to death, legal issues, or even just a paperwork snag. If you haven’t named a contingent beneficiary—basically a backup—things can get complicated fast.

Without a contingent (or secondary beneficiaries), the life insurance benefits might end up being paid to your estate and get stuck in probate court. That means delays, legal fees, and a whole lot of stress for the people you were trying to help in the first place.

That’s why it’s so important to designate beneficiaries beyond just one person. You can even list multiple beneficiaries—such as multiple primary beneficiaries and multiple contingent beneficiaries—to make sure there’s a clear path for the benefit will be paid no matter what. When naming more than one beneficiary, be specific about the percentage each beneficiary will receive, so there’s no room for confusion or fighting down the line.

Think of it like planning a trip: you always want a Plan B in case Plan A falls through. Naming contingent beneficiaries is the same idea—it keeps your wishes intact and gives your loved ones peace of mind, no matter what life throws their way.

Tips for Choosing the Right Life Insurance Beneficiary

Choosing a life insurance beneficiary isn’t just about picking someone you love—it’s about picking someone who can handle the responsibility and is the right beneficiary for your goals. While there’s no one-size-fits-all answer, there are a few things worth thinking through before you choose a life insurance beneficiary.

First, consider the age of the person you’re naming. As we mentioned, minor children can’t directly receive life insurance proceeds, which can lead to court involvement and delays. If you’re thinking of naming a child, you may want to work with an attorney to set up a trust or backup beneficiary structure so the beneficiary receives the funds in a controlled way.

Next, think about the relationship and level of financial responsibility that person has. Do they manage money well? Are they in a stable place emotionally and financially? It might sound harsh, but you want to be sure the beneficiary is someone who’ll use the life insurance money wisely—whether that’s paying off debts, covering day-to-day expenses, or investing it for long-term needs.

Another important step? Talk to the person you’re naming as a beneficiary. It might feel a little awkward at first, but it’s a smart move. Let them know they’ve been named as a beneficiary and what you hope the money will help with. That way, there are no surprises—and they’ll have time to prepare if needed.

And finally, if your situation is complex—say you have multiple beneficiaries, children from different marriages, a mix of term life and whole life insurance, or group life coverage through work—it’s worth checking in with a financial planner or your life insurance companies. They can help you understand the types of life insurance beneficiaries, how each beneficiary may be treated, and how to structure things so the death benefit must go where you intend.

Bottom line: taking a little extra time to set up the right beneficiaries for life insurance can make a big difference for the people you care about most.

Conclusion

At the end of the day, your life insurance policy is there to take care of the people you care about most—but that only works if your beneficiaries listed are set up correctly. As we’ve seen, it’s easy to make mistakes when it comes to naming a beneficiary. Whether it’s forgetting to name a beneficiary at all, failing to update things after big life changes, or assuming your will has the final say, these small slip-ups can lead to big complications later.

The good news? These mistakes are totally avoidable. Just take a little time to review your beneficiary choices regularly—especially after major life event changes like getting married, divorced, or having kids. Be specific with your beneficiary designations, make sure they’re aligned with your will, and don’t forget to list primary beneficiaries and contingent beneficiaries too.

It’s also important to update your policies if your beneficiary passes away, your goals shift, or you change jobs and pick up new group life coverage. Keeping your beneficiary information current ensures the death benefit will be paid to the people or entities you actually intend.

If you’re not sure where to start, don’t wing it—ask your insurance company or talk to a financial advisor. They can walk you through your life insurance beneficiary rules, help you fill out the designation form, and make sure everything is set up so the beneficiary gets the protection you had in mind upon your death.

FAQs

Can I name multiple life insurance beneficiaries?

Yes, absolutely. You can name a beneficiary or multiple beneficiaries and assign them specific percentages of the payout. Just make sure the math adds up to 100%, and be clear about who gets what so each beneficiary to receive their share is clearly defined.

What happens if my beneficiary dies before me?

If your primary beneficiary dies and you haven’t named a contingent beneficiary, the life insurance death benefit may be paid to your estate and could end up in probate. That’s why naming backups and changing beneficiaries when circumstances change is so important.

Does life insurance go through probate?

Typically, no—life insurance is designed so the death benefit is simply paid to your estate only if there’s no beneficiary listed or if all beneficiaries named are deceased. When you have at least one primary beneficiary and, ideally, multiple contingent beneficiaries set up correctly, your beneficiary will receive the money directly and receive your life insurance benefits without going through the court process.