What Is an Irrevocable Beneficiary on a Term Life Insurance Policy?
Understanding the language in your term life insurance policy is critical to making sure that the policy functions as expected and covers you properly, so it’s worth taking the time to understand some important insurance vocabulary. For example, many policies offer the ability to name an irrevocable beneficiary, and many policyholders are fairly clueless as to what this means (or the types of situations where it might be helpful). The designation can be very crucial to set up your policy correctly, depending on the beneficiaries you’re naming and the amount of money each will receive if you should die during the term of your life insurance.
[sc_content_link label=”Get today’s insurance rates.” cat=”life”]
Naming an Irrevocable Beneficiary
Naming a beneficiary is often one of the most difficult parts of setting up a life insurance agreement. This is particularly true when a life insurance policy is purchased to cover obligations. Some life insurance policies are set up for divorced couples and other estranged parties, and when this is the case, it’s not uncommon for a term life insurance policy to name an irrevocable beneficiary. It can be useful to add an irrevocable beneficiary to a policy, but there are a few important things to understand when taking this action.
In a standard life insurance agreement, an irrevocable beneficiary is a beneficiary that cannot be changed after the policy takes effect without the beneficiary’s stated permission. Even the policyholder has no power to change an irrevocable beneficiary, regardless of who is responsible for the policy payments. An irrevocable beneficiary usually has to sign a special form to be named on a term life insurance policy and additional paperwork is necessary if the policy’s beneficiary ever needs to be changed. There may be exceptions written into the contract; for instance, if the irrevocable beneficiary dies, benefits may be automatically transferred to another party or the policyholder might get the chance to name a new beneficiary.
It’s most often used in policies where the irrevocable beneficiary is a child of the policyholder. The idea is that nobody will be able to take the beneficiary off of the policy – not even the policyholder – without jumping through hoops to do so. In this situation, removing or changing the benefits of the plan would require the child’s legal approval. The special case of an irrevocable beneficiary doesn’t limit the amount of money that a policyholder can assign to each beneficiary, and it doesn’t mean that more of the benefits go to that person. It’s simply a way to avoid any confusion or misdealing regarding the benefits assigned to that particular beneficiary.
An irrevocable beneficiary might also be named when the policyholder is purchasing life insurance to meet a financial obligation. Many life insurance policies that are issued after divorce settlements or lawsuits name an irrevocable beneficiary, for instance, and there’s usually a court order in place to ensure that the policy stays active. Without a court order, there are problems with a life insurance agreement that names an irrevocable beneficiary. While the beneficiary can’t be changed, the policy itself could simply be canceled, so naming an irrevocable beneficiary isn’t enough in and of itself to ensure a payout to a certain party. A legal agreement needs to be more complex to guarantee a payout (or at least life insurance protection) for a specific beneficiary.
[sc_content_link label=”Shop and compare insurance quotes.” cat=”life”]
Very few additional scenarios would call for the establishment of an irrevocable beneficiary. And, in general, most policyholders would rather maintain the majority of the control over their own beneficiaries. Making a beneficiary irrevocable clearly removes some of that control. Still, some policyholders set the clause up for their spouses, parents or other loved ones for various reasons. That is why it is crucial to understand what the concept means. It’s certainly within your rights and abilities as a term life insurance policyholder if you wish to set up your policy in this way.
All life insurance buyers who are interested in irrevocable beneficiary life insurance agreements should speak with an attorney. An experienced attorney can help to set up a legal agreement that protects both parties adequately and can ensure that a term life insurance policy with an irrevocable beneficiary is legally kept in place, regardless of whether or not the policyholder wants to keep the life insurance policy active. The beneficiary of a term life insurance policy can ensure his or her rights by being named as irrevocable, and when a payout needs to be ensured, this clause can be vital in a well-written term life insurance agreement.
Before you even look for a life insurance quote, understand as many insurance terms as you can – especially those that apply to your beneficiaries. Remember that you can ask your insurance agent for definitions if you should need them, and you can ask for advice from your agent, lawyer or from friends and family that might have similar policies. It’s also a good idea to occasionally review your policy, and carefully read over any policy changes suggested by your insurance company. Regardless of how you’re setting up benefits, reading the fine print can give you more peace of mind and more flexibility when trying to get your policy up and running smoothly.
[sc_content_link label=”Get the right insurance coverage.” cat=”life”]