What is an 'Absolute Beneficiary'

An absolute beneficiary is a designation of a beneficiary that can not be changed without the written consent of that beneficiary. This term is often used in connection with an insurance policy when a beneficiary is named. The terms of the policy or agreement will specify whether the beneficiary is absolute or if it can be changed.

BREAKING DOWN 'Absolute Beneficiary'

Absolute beneficiary is a permanent and binding designation. By law, the individual or entity that requests a policy with an absolute beneficiary, or the company that provides it, cannot later change the beneficiary without the written permission of that initially named beneficiary.

Also referred to as an "irrevocable beneficiary," absolute beneficiaries can also refer to a trust, an employee benefit plan such as a pension, or any other instrument or contract with a beneficiary clause.

Although an absolute beneficiary cannot be changed without the beneficiary’s permission, it can still be a good idea to name a contingency beneficiary in these situations. That provides a backup option, just in case the party named as the absolute beneficiary dies or is otherwise unable to take legal ownership or control of the benefits before the policy is redeemed or the assets are transferred.

Absolute Beneficiary and the Need for Caution

The naming of absolute beneficiaries is common in divorce settlements or liability cases where part of the settlement is the naming of a given person as a beneficiary. The gives the benefitting party a considerable sense of security, since they know it is unlikely that they would be deprived of the payments or benefits to which they are legally entitled. This security is based on the fact that it would be very challenging, and likely impossible, for the other party involved in the case to later try to make changes to the terms of the agreement that relate to the beneficiary.

For this reason, parties involved in any settlement or agreement that could involve the naming of an absolute beneficiary should proceed with caution. Any legal agreement that includes designations of absolute beneficiaries should be made very carefully and with professional consultation. Once a party is named as absolute beneficiary, the other party involved in the agreement cannot later remove that person as beneficiary, even in the case of a divorce, disownment, estrangement, falling out or other form of separation or disagreement. The only “escape clause” would be if the absolute beneficiary voluntarily agrees to be removed and replaced, but it is very unlikely that a person would relinquish claims to assets or benefits to which they are legally entitled.

  1. Beneficiary

    A beneficiary is any person who gains an advantage and/or profits ...
  2. Revocable Beneficiary

    A revocable beneficiary can expect but is not guaranteed payouts ...
  3. Irrevocable Beneficiary

    An irrevocable beneficiary has guaranteed rights to assets in ...
  4. Contingent Beneficiary

    A contingent beneficiary is a beneficiary who will receive the ...
  5. Life Estate

    A life estate refers to property owned by an individual during ...
  6. Discretionary Beneficiary

    Discretionary beneficiaries are individuals or entities that ...
Related Articles
  1. Retirement

    What You Should Know About IRA Beneficiaries: Part 2

    Here's how IRAs, and the beneficiaries you name, work with wills and trusts.
  2. Managing Wealth

    Why Your Will Should Name Designated Beneficiaries

    Find out how to make the tough decisions when it comes to choosing beneficiaries for your will.
  3. Financial Advisor

    Why You Need to Find the Right IRA Beneficiary

    It definitely matters who you pick as your IRA beneficiary—and how you go about it. And in some cases, your best option may be to go with a trust.
  4. Retirement

    Why Your Estate Shouldn't Be Your IRA Beneficiary

    Here are five reasons why you should not name your estate as your IRA beneficiary.
  5. Retirement

    September 30: A Key Date For Retirement Plan Beneficiaries

    Unless certain action is taken by this date, distribution rules can put the youngest inheritor at a disadvantage.
  6. Financial Advisor

    Avoid This Life Insurance Policy Pitfall

    Life insurance policies need to be reviewed regularly to make sure that the beneficiary you chose some time ago is still the right choice today.
  7. Financial Advisor

    Passing an IRA to a Trust: The Good and Bad

    Creating a trust is a common estate planning tactic, but naming a beneficiary to an IRA to a trust may have unintended consequences.
  8. Insurance

    Should My Child Be My Life Insurance Beneficiary?

    Don't make the mistake of naming your minor child as your life insurance beneficiary.
  9. Financial Advisor

    Avoid These 4 Roth IRA Mistakes in Estate Planning

    Beneficiaries will not be able to maximize their tax savings with a Roth IRA unless it is passed down in a certain manner.
  1. What are the pros and cons of naming a trust as the beneficiary of a retirement account?

    Basically, naming a trust as the beneficiary of a retirement account depends on how many people you want the account's proceeds ... Read Answer >>
Hot Definitions
  1. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  2. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  3. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  4. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  5. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  6. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
Trading Center