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Table of Contents

Named Beneficiary: Overview, Types, and Related Risks

By
Julia Kagan
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Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

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Updated May 05, 2024
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Marguerita is a Certified Financial Planner (CFP), Chartered Retirement Planning Counselor (CRPC), Retirement Income Certified Professional (RICP), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.
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What Is a Named Beneficiary?

A named beneficiary is an individual, decreed by a written legal document, who is entitled to collect assets from a trust, insurance policy, pension plan account, IRA, or any other financial instrument. If a property has multiple named beneficiaries, they share in the proceeds at the time of disposition. In some cases, such as an annuity policy, the policyholder and the named beneficiary may be the same person.

Beneficiary designations can be complex. For example, by naming a specific beneficiary in a life insurance policy, the proceeds will not be subject to the stipulations of will, nor will they be affected by probate proceedings.

Key Takeaways

  • A named beneficiary refers to an individual, decreed by a written legal document, who is entitled to collect assets from a trust, insurance policy, pension plan account, or IRA.
  • There are various types of beneficiaries, such as primary beneficiaries who stand first in line to receive benefits.
  • Contingent beneficiaries refer to individuals entitled to receive the benefits of an account if the primary beneficiary refuses the asset, is deceased, or cannot be located.
  • A beneficiary can be an estate, as opposed to a single individual. 

Types of Named Beneficiary

There are several types of beneficiaries:

  • Primary beneficiary: an individual who is first in line to receive benefits.
  • Contingent beneficiary: an individual who receives the benefits of an account if the primary beneficiary is deceased, cannot be located, or refuses to accept the assets after the account owner's death. A will generally outlines predetermined conditions that must be met before a contingent beneficiary may receive any insurance proceeds or retirement assets.
  • Secondary beneficiary: a synonym of "contingent beneficiary."

In late December 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The Act encourages employers to offer annuities as investment options within 401(k) plans.

It is important to note that a named beneficiary does not necessarily have to be an individual. For example, the named beneficiary of an insurance policy can be the estate of the deceased, in which case, the actual beneficiaries will be designated in the will.

A beneficiary differs from an heir. The first is entitled to collect property by decree of a will, while the latter is someone entitled to assets via intestate succession.

Risks Related to Named Beneficiaries

It’s essential for grantors to formally name the beneficiary or beneficiaries, in a full estate planning process. Furthermore, many financial advisors recommend reviewing and updating all beneficiary designations every few years, particularly after a major life event such as a divorce or death of a loved one.

What Is the Difference Between a Primary and Secondary Beneficiary?

The primary beneficiary is the first named to receive benefits as stated in a will. If the primary either can't or is unwilling to accepts the assets, the secondary beneficiary, also called the contingent beneficiary, would be next to receive assets.

Who Can Be a Named Beneficiary?

A named beneficiary is often an individual or a group of people, such as a personal acquaintance or family member. But the beneficiary can also be an estate or a non-profit organization, chosen by the account holder's insurance policy.

What Are the Advantages of Having a Named Beneficiary?

Having a named beneficiary guarantees that the deceased person's assets are left to the person or individual of their choosing. It also benefits the beneficiary, as there are tax advantages to being a named beneficiary. Named beneficiaries are also able to skip probate.

The Bottom Line

A named beneficiary is the person entitled to receive benefits from a will, trust, or other financial arrangement. When you open a life insurance policy or retirement account, you will be asked to list the named beneficiaries for the account. These are the people who will be able to access the account after you die.

Article Sources
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  1. Congress. "H.R.1865 - Further Consolidated Appropriations Act, 2020."

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