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What Is an Irrevocable Beneficiary in Life Insurance?
<lingo>On a life insurance policy, a beneficiary is the person who receives the funds if the policy pays out due to the death of the policyholder. An irrevocable beneficiary is a bit different. They are still the individual who receives the death benefit. However, this beneficiary must agree to any types of changes to the policy’s compensation from the policy. This provides the beneficiary with more control over the policy than he or she would get otherwise. Irrevocable beneficiaries are not necessarily always in place. Most often, the beneficiary does not play such a role.</lingo>
Irrevocable Beneficiary Briefly and Clearly Defined
In a traditional life insurance policy, the beneficiary is generally a revocable beneficiary. That means the rights to the death benefit, and any other assets within the life insurance policy can be denied. They can also be changed in various situations. However, this is not possible with an irrevocable beneficiary. If the policyholder dies while the life insurance is in place, it is not possible for the insurance company to make changes to the compensation owed to that party with an irrevocable beneficiary.
If any changes are made to the payout terms of the policy in an irrevocable beneficiary policy, that individual must agree to them. Once this person is named, it cannot be changed. More so, even the policyholder who purchased the policy cannot change some aspects here.
<twitter>On a life insurance policy, a beneficiary is the person who receives the funds if the policy pays out due to the death of the policyholder. An irrevocable beneficiary is a bit different. They are still the individual who receives the death benefit.</twitter>
For example, if a life insurance policy is purchased during a marriage, but then the parties divorce, in a typical life insurance policy, the beneficiary could be changed or the amount of compensation could change. With an irrevocable beneficiary, this is not likely. Only if the irrevocable beneficiary agrees to the changes in the policy can they be made.
It is more common for this type of beneficiary to be named when children are to inherit the proceeds from the death benefit. The parent may want to ensure that the child receives funds after death occurs. This would ensure the child obtains the desired compensation from the policy regardless of changes over time with the policy.
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