How to Choose Beneficiaries for Life Insurance in California?

Life insurance beneficiary rules: Choosing a beneficiary of a life insurance policy is an important aspect of the entire policy purchase because the named beneficiary will be entitled to death benefits when the insured dies. In choosing a beneficiary, it is important to determine the person or organization needing financial support the most if you die and the coverage you want them to have. Note that you can only name people with whom you have an existing relationship as beneficiaries of a life insurance policy.

Most insurance companies in California also warn against choosing a minor as a policy beneficiary because of the complicated legal process involved when the insured dies. If you want to name a child under the age of 18 as a beneficiary on California life insurance, you typically need to set up a trust that will manage the funds for the minor. Discuss your trust needs with a California life insurance trust attorney)

Life insurance divorce California: Since California is a “Community Property” state, some parts of the policy may be split in half during the divorce. Cash value of life insurance that was purchased during marriage using community funds gets divided, while the ownership of policy is typically transferred to whoever was the beneficiary. This may result in the ex-spouse owning your life insurance policy and having to pay for it, if they want it to pay out when you die. (For more details about life insurance and how it works during a divorce in California - speak with a California life insurance divorce lawyer)

Beneficiaries in California life insurance are described in the following sections:

What is a Life Insurance Beneficiary?

According to the California life insurance beneficiary law, a beneficiary of life insurance refers to an individual or organization chosen by the insured that will be entitled to the proceeds of a life insurance policy when the insured dies. You can name one or more beneficiaries, particularly those who rely on you for survival. For example, a beneficiary could be:

• your spouse,
• adult children,
• siblings,
• a charitable organization,
• trusted business associates,
• Business partners,
• Employers

Alternatively, you can have your estate as beneficiary of life insurance.

While in personal life insurance the beneficiaries are typically people and charitable organizations, in commercial life insurance the beneficiary is usually a designated person, the business itself, and/or a lending institution.

There are two major types of beneficiaries in California life insurance:

• primary life insurance beneficiary
• Contingent life insurance beneficiary (secondary)

A primary beneficiary is usually a direct relative of the insured, such as the spouse or the children, qualified to receive death benefits. A secondary beneficiary is like a backup that can only access the death benefits if the primary beneficiary passes away before the insured and is unable to receive the death benefits. 

Who Chooses The Beneficiary of Life Insurance in California?

Life insurance beneficiary is chosen by the policy owner. However, if a policy is purchased by an organization as protection for specific individuals, they will be responsible for choosing the beneficiary. Additionally, if you obtain a life insurance policy as part of a loan requirement in California, you will be obligated to include the lender as a primary beneficiary to ensure that the death benefits will get paid to the lender if you die before completing the loan repayment.

How to Change Beneficiary on Life Insurance in California?

Generally, a life insurance company permits an insured to change the named beneficiaries of their life policy at any time, provided the policy is still active and in good standing. To make these changes, notify your life insurance insurance company about your intention. You can decide to make changes to your policy for different reasons, and you will not be required to state the reasons. However, in certain cases, you may be required to notify and obtain the consent of the beneficiary before they can be removed. This is particularly the case if:

• you have included an irrevocability clause in the policy, or
• you are removing a lender with an active insurable interest.

Your life insurance insurer will typically provide you with a beneficiary change form, which you need to fill out, sign, and submit for processing. Some life insurance companies in California offer the possibility to change beneficiaries in an online portal. Once the insurer makes the change official, the insured is notified of it.

Contact a California-licensed life insurance agent to assist you whenever you intend to change your policy beneficiaries.

Can You Change Beneficiary on Life Insurance After Death?

No, after the death of the insured the beneficiaries listed in the policy receive the death benefit.

Who Should I Name as My Life Insurance Beneficiary in California?

In a life insurance policy, beneficiaries should be people that will be adversely affected when you die. You should name persons for whom you wish to provide financial safety when you pass away. To fulfill your humanitarian goal, you can also name a charitable organization as a beneficiary of your California life insurance policy.

Two options are available when choosing a beneficiary: the revocable beneficiary and the irrevocable beneficiary. You can change your revocable beneficiary at any time without necessarily obtaining consent. On the other hand, you cannot change irrevocable beneficiaries unless they consent to it.

Who Should You Never Name as Your Beneficiary in California?

The beneficiary is typically not legally bound to follow your wishes on how to use or how to invest life insurance payout (unless it’s an organization managing the funds), so you should never name a stranger or someone in whom you do not have complete trust as a beneficiary. In addition, you should not choose a minor as a beneficiary because when you pass away, they may be unable to access the death benefit if they are not of legal age - unless a trust is involved. Also, you should not name your estate as a beneficiary due to complications that may arise in settling the estate and the taxes that may arise.

Discuss your beneficiary life insurance questions with a California-licensed life insurance agent.