What is an irrevocable beneficiary?
An irrevocable beneficiary is a person, also known as a beneficiary, who is appointed by another to receive benefits under a life insurance policy under a contract that cannot be changed without the beneficiary's permission. It is the opposite of a revocable beneficiary, whose benefits can be changed by the person underwriting the policy. In many cases, this type of beneficiary is called upon as a way of meeting a financial obligation, such as when a person owes money to an ex-spouse. With this type of arrangement, a contingent beneficiary is often appointed to receive benefits if the irrevocable beneficiary dies before the person who purchased the policy.
Life insurance is a way for people to leave a sum of money after their death to ensure that their friends and family can meet their financial obligations later on. As such, a life insurance policy nominates certain people, known as beneficiaries, who will be the recipients of the money specified by the policy. Whenever the insured wants to arrest a certain person who will definitely receive life insurance benefits, he nominates him as an irrevocable beneficiary.
The main benefit of being named an irrevocable beneficiary is that no part of the life insurance contract relating to that person can be changed without their permission. What this means is that the benefits will be transferred permanently after the death of the insured. In cases where this beneficiary dies first, the insured may appoint a contingent beneficiary to receive the benefits originally granted to the deceased beneficiary.
Not all beneficiaries need to be named as irrevocable beneficiaries. Revocable beneficiaries may initially be named to receive benefits from an insured, but this can change, for example, if the insured has a child or the beneficiary dies. In such cases, the insured can revoke these benefits from these people and choose other beneficiaries. This cannot happen when a beneficiary is irrevocably named, so the insured must weigh the decision before making such a declaration.
Using this type of beneficiary is a way for someone to meet financial obligations owed to another. This is often the case in divorce proceedings, when a spouse is held responsible for the ex-spouse's financial situation. When this is the case, and the ex-spouse is indicated as an irrevocable beneficiary, it is usually accompanied by a court order that proves this agreement. This prevents the policyholder from canceling the policy and denying the benefits intended for his ex-spouse.