What Is a Designated Beneficiary?

A designated beneficiary inherits an asset, such as a life insurance payout or the balance of an individual retirement account, after the death of the asset's owner. The beneficiary is usually a spouse or other family member but may also be an estate, a trust, or a charity.

Anyone who has opened a qualified retirement plan account or bought a life insurance policy has named a designated beneficiary. The named person will receive the account balance in the event of the death of the account holder.

Understanding the Designated Beneficiary

A designated beneficiary inherits the balance of an account, an annuity, or a life insurance policy when the grantor passes away. Needless to say, anyone with a life insurance policy or other assets should review the documents regularly and make any changes required by new circumstances, such as marriage, birth, death, or divorce.

Key Takeaways

  • A designated beneficiary is named on a life insurance policy or financial account as the recipient of those assets in the event of the account holder's death.
  • The beneficiary designation does not replace a signed will. In the absence of a will, the beneficiary may face a long delay for probate court action.
  • The designated beneficiary generally has to file a claim with a copy of the death certificate to receive the assets.

Multiple beneficiaries can be named. Assets can be divided among more than one primary beneficiary. There also can be more than one secondary beneficiary. The primary beneficiary or beneficiaries are the first in line to receive the asset. The secondary or contingent beneficiary is next in line if the primary beneficiary predeceases the owner of the asset, cannot be located, or refuses to accept the asset.

Designated beneficiaries may be revocable or irrevocable. If revocable, the owner of the asset can make changes. An irrevocable beneficiary has certain guaranteed rights that cannot be denied or amended.

How to Collect

The designated beneficiary must make a claim to receive assets left to him or her as another person's designated beneficiary. The claim form will be supplied by the company that manages the asset. The form should be returned with a copy of the account holder's death certificate. This is available from the county or state in which the person lived.

Having a signed will in place is critically important. Otherwise, your designated beneficiary may face a long delay in getting life insurance or other assets.

State laws vary somewhat, but the company generally has up to 30 days to review the documentation and respond, either with an approval or with a request for additional information. Life insurance payments are normally paid out within 60 days of the filing of the claim.

If a person dies without a will, the designated beneficiary may have to go through a probate court to get paid. If the person has been named as the designated beneficiary on an insurance policy or an investment account, the probate court will name an executor of the estate to affirm that decision. However, the court process can delay the transfer of assets for months or even years.