Life Insurance: Revocable vs. Irrevocable Beneficiary

Life insurance is an important part of life and it is a big decision that has to be taken by the breadwinner of the family. Life insurance is like wearing a helmet while driving a bike if you meet with an accident your head would be safeguarded by the helmet. While taking a life insurance policy did you update the name of the beneficiary?. Is your beneficiary an irrevocable beneficiary or a revocable beneficiary? Life insurance policy should either have one of either beneficiary, revocable or irrevocable beneficiary. So let us see which beneficiary has more advantages.

Revocable VS Irrevocable Beneficiaries

Commonly in all life insurance policies, the beneficiary type is revocable. Here the policy owner has the right to remove or alter the details of the beneficiary. The insurance firm also has no legal obligation for it they do not need to notify the beneficiary. If the policyholder decided to cancel the policy then the insurance company does not have an issue or it does not need to inform the policyholder about the policy being canceled. There is no cost involved in changing the name of the beneficiary, many insurance companies provide a form where policyholders can update the beneficiary name. This form can be obtained from your insurance advisor or just get in touch with the insurance firm or the company they would provide you the same. If the form is not available then send mail to them requesting for the changes to be made and provide the form at the earliest. Also, make sure that once the beneficiary name is updated the insurance company must inform the policyholder accordingly and make sure that it is black and white or it should be in written format. If the beneficiary is less than 18 years then see to it that the trustee is appointed till the beneficiary gets 18 years old. Also, make sure that your trustee is aware of the policy, share the insurance advisor details with him, also the insurance companies details along with the customer care number and emergency number details in case of an emergency. Also, make it point to share the soft copy with the trustee too.

But the irrevocable beneficiary has several rights which are different from the revocable beneficiary. The policy owner cannot remove the beneficiary without the consent of the beneficiary. The policy owner cannot change the beneficiary’s share of death with their consent. If the policyholder does not pay the premium or wants to cancel the premium then they must take the consent of the beneficiary. As the irrevocable beneficiary has a lot of power it is important that the policy owner should be made aware of the powers which the beneficiary.is carrying. When the policyholder takes a loan from the bank he keeps his policy as collateral that banks from which he has taken loan will become the irrevocable beneficiary. The policyholder in this situation pledges policy cash value, death benefit both as collateral to the bank for the loan. This is a perfect example of how a bank becomes an irrevocable beneficiary in the life insurance policy. Here the bank has certain powers. The policyholder cannot remove their name, he cannot close the policy without the consent of the bank. There is one more factor irrevocable beneficiary will always be the primary beneficiary all other beneficiaries will be secondary or tertiary status. In the case, the policy policyholder passes away then the primary beneficiary prior to the changes made in policy will have to become the secondary beneficiary. The irrevocable beneficiary will take the major benefits in all the cases.

Conclusion:

This article would help you to understand the complex issue of the irrevocable beneficiary and revocable beneficiary. It clearly seems that being irrevocable is a profitable business, they do not have to pay a single penny, and still, they have a say in policy. Is it amazing! So all those who are taking a policy always be careful while choosing your life insurance policy take the advice of the insurance advisor and check which companies would provide has good customer care relationship help. As this would be of great help during the trouble times. One general piece of advice always keeps your family updated about the policy you have taken along with all the policy.