What is an 'Irrevocable Beneficiary'

An irrevocable beneficiary is a beneficiary in a life insurance policy or segregated fund contract. The beneficiary must agree to any changes in rights to compensation from these entities.

BREAKING DOWN 'Irrevocable Beneficiary'

An irrevocable beneficiary has certain guaranteed rights to assets held in the policy or fund. Unlike a revocable beneficiary, where their right to assets can be denied or amended under certain circumstances. 

In an insurance policy, the policyholder may designate an irrevocable or revocable beneficiary to receive a pay-out in the event of his or her death. Denial of income from the policy after the death of the insured is not possible if the policy lists them as an irrevocable beneficiary. Also, the beneficiary must agree to any changes made to policy payout terms.

For example, A spouse who is an irrevocable beneficiary has the right to a pay-out even after a divorce. The living, divorced spouse, must agree to changes in the policy before or after the death of the insured. Even the insured cannot change the status of an irrevocable beneficiary once they are named.

Children are often named irrevocable beneficiaries. If a parent wanted to leave money to a child, the parent could designate that child as an irrevocable beneficiary, thus ensuring the child will receive compensation from the life insurance policy or the segregated fund contract.

In some states, an irrevocable beneficiary has the right to veto changes to an insurance policy. Depending on the state, they may challenge any change to the policy, including cancellation. In other states, they may only challenge items that directly affect them such as payout.

Irrevocable Beneficiaries and Divorce

A policyholder can be ordered by a court to designate his or her ex-spouse as a designated beneficiary. Most often this is seen in cases where there are dependent children, child support, or alimony involved.

In such a case, the ex-spouse can work with a divorce lawyer to persuade a court to make the policyholder designate the ex-spouse as an irrevocable beneficiary to secure child support. However, the court can also have the policy amended if it's deemed that the payout is excessive in regards to what is needed to support the child or at a time that the children are no longer seen as dependents. 

It's important to note, however, that state law ultimately decides the rights of beneficiaries to an insurance policy whether they be revocable beneficiaries or irrevocable beneficiaries. Policyholders should be clear with any beneficiary as to what the terms and conditions of a life insurance policy will be.

RELATED TERMS
  1. Designated Beneficiary

    A designated beneficiary is usually a person (although it can ...
  2. Named Beneficiary

    The term refers to any beneficiary named in a will, a trust, ...
  3. Absolute Beneficiary

    An absolute beneficiary is a designated beneficiary that can ...
  4. Beneficiary Clause

    Beneficiary clause permits an investment vehicle policy owner ...
  5. Beneficiary

    A beneficiary is any person who gains an advantage and/or profits ...
  6. Contingent Beneficiary

    A contingent beneficiary is a beneficiary who will receive the ...
Related Articles
  1. Retirement

    Mistakes in Designating a Retirement Beneficiary

    Make sure your beneficiary designations not only reflect your intentions but also meet the requirements to be effective.
  2. Retirement

    The Importance of Updating Retirement Account Beneficiaries

    Retirement account beneficiaries should be reviewed and updated on a regular basis to avoid any outdated information. This prevent any confusion in a time of loss.
  3. 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.
  4. 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.
  5. Personal Finance

    How Life Insurance Works in a Divorce

    When dealing with divorce, life insurance is an important issue that is often overlooked. Here is an overview of how it works in a divorce.
  6. 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.
  7. Retirement

    Distribution Rules For Inherited Retirement Plan Assets

    If you've recently inherited a retirement plan, you must get to know the rules for distributing the funds.
  8. Retirement

    A Look at Protecting Children With an IRA Trust

    Too many people make huge and irreversible mistakes when naming the beneficiaries for their retirement accounts.
RELATED FAQS
  1. Can the non-spouse beneficiary of an IRA name a successor beneficiary?

    Whether an Individual Retirement Account beneficiary can name a successor beneficiary is determined by the provisions of ... Read Answer >>
Trading Center