When dealing with clients, one of the topics I find often needs clarification is the designation of a beneficiary as either revocable or as irrevocable. This is an issue of the utmost importance especially when dealing with spouses.
Firstly, what is a revocable beneficiary and how does it differ from an irrevocable beneficiary?
A revocable beneficiary is simply a beneficiary that is subject to change solely at the whim of the policy owner. An irrevocable beneficiary is a beneficiary whose designation can only be changed with the consent of the beneficiary. The difference being that in one instance, the policy owner can decide to switch the beneficiary to someone other than the original beneficiary. In the irrevocable contract, the policy owner cannot change the beneficiary unless the current beneficiary is in agreement.
It is important to discuss and understand the topic of beneficiary designation prior to choosing a designation for a beneficiary. Although it is an important consideration in any situation, consider a young married couple Jack and Meg, who take out a life insurance policy. Jack owns the policy and his life is insured with Meg as the sole beneficiary. Ten years down the line, Meg meets Alex and decides to divorce Jack. Jack meet Lisa and ain’t love grand. If Meg was designated a revocable beneficiary, Jack would be advised by his agent to amend his beneficiary to Lisa perhaps, or his mum Agnes. Meg has no say in the decision.
Now consider that Meg was named an irrevocable beneficiary on the policy. In that case Jack would be unable to change the beneficiary from Meg to Lisa (Unless Meg agrees). No matter what his relationship with Meg is at this point, if he passes away, Meg and not his new flame Lisa would be paid out the benefit payment.
A consequence of bad planning and a lack of proper understanding of these differences can leave your money in the wrong hands after you pass. Speak to a licensed Insurance Advisor and make the right decision for your circumstance.