Revocable primary beneficiary vs. Irrevocable primary beneficiary vs. Contingent

  • In general, beneficiaries can only receive the policy proceeds if he is alive at the time of the insured’s death.
  • The irrevocable primary beneficiary will receive the face amount of the life insurance free of Estate Tax. He cannot be replaced without his consent or signature. An irrevocable beneficiary is very similar to an Absolute Assignee.
  • When one is designated as an irrevocable beneficiary, his consent must be obtained by the policy owner in order to (a) name a different person to receive policy benefits; (b) obtain a loan under the policy; (c) surrender the policy for its cash value; (d) make substantial modifications in the policy such as deletion of riders.
  • Policy loans by the policy owner don’t need the signature of primary beneficiaries. 
  • Revocable beneficiaries can be replaced without his consent and subject to Estate Tax.
  • There can be primary and secondary revocable beneficiaries.
  • The insured can add a third beneficiary at any time.
  • Contingent beneficiaries – these are the beneficiaries where interests remain inoperative during the lifetime of the insured. Their designation does not need the approval of primary beneficiaries, only by the policy owner.
  • What if both the insured and the primary beneficiaries died together in a car accident? And there are no contingent beneficiaries. Where will the proceeds be paid to? In the estate of the insured.

Transferability and Absolute Assignee

Can a life insurance policy be passed on to your child upon your retirement? 

  • Yes. By making him your Absolute Assignee, your present life insurance policy will be payable to your estate to your son, who will assume the premium payments. He will be free from Estate Tax Liability. Note that an absolute assignee is similar to the irrevocable beneficiary.
  • Section 184 of the Insurance Code: “A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.”