When you buy life insurance, you choose a beneficiary to receive the policy's death benefit when you pass away. A life insurance beneficiary can be one or more people, or it can be an organization. For example, you can name your spouse, your children, a friend, business partners, a nonprofit organization or your estate as the beneficiary of your life insurance policy.
A separate but related decision to make is how much flexibility you want for changing your policy's beneficiary in the future. You have the option to designate either a revocable beneficiary or an irrevocable beneficiary.
What Is an Irrevocable Beneficiary?
While the selection of a revocable life insurance beneficiary can be easily canceled or revoked, if you change your mind, you can only remove an irrevocable beneficiary if they agree to give up their right to the benefit. You also may not cancel the policy unless they agree.
In some states, life insurance contracts with irrevocable beneficiaries can prohibit you from making any changes to the policy — including increasing or decreasing its coverage and adding or removing other beneficiaries — without the irrevocable beneficiary's permission.
Reasons To Choose an Irrevocable Beneficiary
With so many restrictions involved, life insurance policyholders rarely choose irrevocable beneficiaries. When they do, they often name their spouse or children.
A prenuptial agreement might call for a spouse's selection as a life insurance beneficiary to be irrevocable. A policyholder whose spouse and children depend primarily on his or her income might also choose to make the spouse an irrevocable beneficiary. That way, the spouse is guaranteed to have money to support themselves and the children if the policyholder dies unexpectedly.
Children might be selected as irrevocable beneficiaries to make sure that in the event of divorce or remarriage, a new spouse would not be able to bar their access to the policy's death benefit. Naming children as irrevocable beneficiaries might also be a way to prevent an ex-spouse from interfering with the policyholder's intention to protect the children financially.
Potential Drawbacks of Naming Irrevocable Beneficiaries
Relationships and life circumstances change, but when you designate irrevocable beneficiaries, you are locked into that choice unless they agree to be taken off the policy.
Even after a divorce, your former spouse would retain the right to the money from your life insurance if you made them an irrevocable beneficiary when you purchased the policy. If you remarried and wanted to change the beneficiary to your new spouse, you couldn't do so without your ex-spouse's okay.
In some states, you not only may not remove irrevocable beneficiaries without their consent, but you also can't add beneficiaries unless they approve. That would include additional children or other dependents that you might want to receive a share of your policy's benefits.
Questions To Ask Before Making a Beneficiary Irrevocable
What are the laws in your state regarding the rights of irrevocable beneficiaries?
Could a change in your relationship with the beneficiary potentially interfere with your original intentions in buying life insurance?
Do you want an ironclad guarantee for your beneficiary's protection, or do you prefer more flexibility to change the beneficiary?
Deciding whether to make a beneficiary revocable or irrevocable has important implications for those you wish to protect with your life insurance, now and in the future. Before you name an irrevocable beneficiary, be sure that you're making an informed decision.