Alternatively, a policyholder can opt to distribute their death benefit to multiple people. Continue reading to become more familiar with the different types of beneficiaries, who can be a beneficiary, and the life beneficiary's roles and responsibilities.

Full name(s), birth dates, and social security numbers are just some of the basic information a policyholder would need when selecting a beneficiary. The policyholder must also choose the type of beneficiary they want- the primary beneficiary or the first choice to receive the holder's death benefit, and the contingent beneficiary – the one who claims the payout should the primary beneficiary is unable to collect it.

In some cases, multiple beneficiaries are designated, and the stake in the payout for each beneficiary gets is determined. Specified percentages may be designated to the chosen beneficiaries at the discretion of the policyholder.

The named beneficiary(ies) will need to be designated as a revocable or irrevocable beneficiary. A revocable beneficiary may be removed and can designate someone else in their place any time. This is a good choice if a policyholder is single at the time of life insurance purchase since they may get married and have children in the future. For example, the policyholder may name a parent or a sibling as a revocable beneficiary and later change their beneficiary to their spouse. An irrevocable beneficiary is a beneficiary who cannot be replaced with someone else from the policy without their approval. 

In this manner, the policyholder may still opt to designate a trust in the child's name as the beneficiary. Then, the trustee shall pay out the death benefit once the child reaches the age of majority.

Another possible beneficiary would be a friend or a business partner. Virtually anyone may become the policyholder's beneficiary, however there is one exception- If the policyholder lives in a community property state, they must first secure a consent form from their spouse that allows them to give the benefit to someone else.

A charity or nonprofit organization may also be an option in choosing a beneficiary as these organizations typically run with tight funding. A policyholder's death benefit could help expand their mission by naming them as a beneficiary of a policyholder.

Lastly, a policyholder may also opt to choose a trust as their beneficiary. This is often chosen by people so their children would have easy access to life insurance proceeds.

Designating a trust as a beneficiary is a good choice as it prevents the possible resistance from the insurer if the policyholder is considering an unusual choice as a beneficiary. Therefore, designating a trust as a beneficiary so the appointed curator may receive and disburse the money on behalf of the policyholder.

There are multiple types of trusts, such as irrevocable and revocable living trusts. However, a policyholder may not need one depending on their current assets and what is in their will.

If a policyholder chooses not to designate any primary beneficiaries for their life insurance, the insurance company will then give out the benefit to the holder's estate. This will considerably hamper the disbursement of life insurance benefits since the benefits are subject to probate – the official proving of a will as authentic or valid and determine who should get the deceased's assets. A tax on the life insurance benefit may also have to be paid should it goes to the estate.

Updating one's life insurance beneficiaries will largely depend on which insurance company the policyholder is currently enrolled. Some companies allow the holder to update their beneficiaries online; some require a phone call or filling out a paper form, which would be needed to either mail or fax to the insurance company.

The table below shows how to update a holder's beneficiaries with the companies that Policygenius works with. If the holder's carrier is not included on the list, they may contact them to find out how to update their enrolled beneficiary.

The designated beneficiary will only receive the death benefit payout once they complete the required paperwork and submit the claim form.

There are two choices on how the money could be received:

• Lump-sum – The beneficiary may request to receive the entire amount in a single transaction. This is practical, especially if they have any immediate expenses to cover, such as the holder's funeral or mortgage payments. The best part is it's tax-free.
• Installment or annuity – The beneficiary may also request to receive the payments either in monthly of annual installments. This type is beneficial as it may be easier to manage, especially if they are aware of their spending habits. Installments may be spread out from five years up to 40 years.

• The beneficiary murdered the policyholder to collect the cash – If this happens, the insurer will  reject their claim. Since most states have the law called the slayer rule, the beneficiary will be deprived to receive the death benefit if there is strong evidence against them.  
• The policyholder dies of a disease that was not declared in their application – the insurer may deny giving the claim to the beneficiary if the cause of death is a pre-existing condition that was not mentioned or declared to the insurer. For example, if a policyholder dies of a heart attack but they failed to mention their heart illness when they applied for life insurance, the insurance company may withhold the death benefit. This may not apply after the contestability time has passed.
• The policyholder died from a previously undisclosed unsafe hobby – if this reaches the insurer, they could recalculate the policyholder's premiums to the amount they think the holder should have been paying and subtract the calculated amount from the payout. This may not apply after the contestability time has passed.
• The policyholder dies from suicide – if the policyholder dies from suicide within the first two years of taking out the life insurance policy, the insurer may not pay out the death benefit. Essentially, all policies have a suicide clause disclosing the insurance company's guidelines if the insured takes their life. Normally, the insurance company refunds the premiums the policyholder paid so far.

The death benefit paid out to the policyholder's beneficiary is usually tax-free because it is not a taxable income and therefore not needed to be reported on their tax return. In some cases, however, a beneficiary will need to pay taxes on money related to the life insurance payout. 

If the death benefit was not paid out immediately after the policyholder's death and accrued interest, the beneficiary might have to pay taxes on that interest. This is also applied if the beneficiary chose to receive the payout incrementally rather than as a lump sum. Lastly, if the life insurance payout went to the policyholder's estate instead of a beneficiary, the person who will inherit the estate will have to pay estate taxes or inheritance taxes on the money since it is not longer regarded as a life insurance payout.

• A life insurance beneficiary is a person/s or organization who receives the payout from the active policy should the policyholder dies.
• Though most people designate their spouse, a policyholder may still designate a sibling, parent, friend, business partner, charity, or trust as their beneficiary.
• It is possible to designate multiple beneficiaries; having contingent beneficiaries is also essential. They serve as back-ups in case the primary beneficiary cannot receive the death benefit.