Life insurance beneficiaries aren’t the most romantic topic to discuss over a candlelit Valentine’s Day dinner. But, far too often, couples are kept in the dark about their partner’s life insurance policy. The National Association of Insurance Commissioners  reports that tens of millions of dollars in death benefits go unclaimed each year because beneficiaries lack basic information about their deceased loved one’s life insurance policies.¹

It’s clear that the consequences of keeping beneficiaries a secret are too great to ignore. When partners are left in the dark about beneficiaries, claim delays, payout discrepancies, and an uncertain financial future may be at stake.  

So why does this consequential financial decision remain unaddressed? And what does this trend expose about the role of life insurance in modern relationships? 

Life insurance beneficiaries can easily become a “set it and forget it” decision for policyholders. They’re usually made at a set moment in time and rarely changed. Even after a major life event, like marriage, many policyholders may forget to – or simply don’t - update their beneficiaries. 

Financial transactions, like income, debt, and mortgages, involve daily or monthly interactions that keep them top-of-mind. So, couples may remember to prioritize these during financial discussions. However, because life insurance is often seen as a one-time purchase, couples may forget to keep each other updated on their beneficiaries or any changes to their policy. 

Several factors cause partners to remain uninformed about life insurance beneficiaries, including: 

·      The assumption that marriage determines beneficiaries: Many couples believe that marriage implies an automatic designation of a spouse as a beneficiary. However, only the 9 community property states (AZ, CA, ID, LA, NV, NM, TX, WA, WI) require a spouse's written consent to name someone else as a beneficiary.²  

·      Discomfort discussing death or money: Death and money can be two of the most controversial topics to discuss. In fact, 51% of people shy away from buying more life insurance because they don’t like thinkingabout death.³ Additionally, 61% of Americans are uncomfortable discussing finances with family or close friends.⁴ Combine the two subjects and it’s clear why couples may avoid addressing life insurance beneficiaries. 

·      Adherence to privacy laws: Insurance carriers are required to follow strict privacy laws to protect policyholders' information.⁵ That means beneficiaries may not know about a loved one’s policy unless the policyholder tells them – or until the insured passes away. Conversely, policyholders aren’t required by law to inform beneficiaries of their designation.⁶ 

According to Pew Center Research, 69% of Americans are married, living with a partner, or in a committed romantic relationship. But there has been a cultural shift in modern relationships: marriage rates have fallen from 55.9% in 1996 to 46.4% in 2023. On the other hand, cohabitation increased from 3.7% to 9.1% in the same period.⁷

As modern relationship dynamics evolve, the role of life insurance in partnerships is changing, too: 

·      Couples are marrying later in life: The average age of marriage is steadily rising, increasing from 20 and 22 for women and men in the mid-1950s to 28.4 and 30.2 in 2023.⁸ As the age of marriage is delayed, many policyholders have designated their beneficiaries well before saying, “I do”.  

·      Non-traditional relationships create legal ambiguity: Non-traditional relationship statuses, like cohabitating, further create complexities in the “secret beneficiaries” trend. When one unmarried partner dies, the survivor has no legal rights to their partner’s life insurance benefits if unnamed as the beneficiary.⁹

·      Fewer couples are combining finances: Many modern couples prefer separation in their finances. Forty-one percent of married couples¹⁰ and 43% of cohabitating couples¹¹ use only joint accounts. This suggests that modern couples normalize minimizing shared financial decisions, including life insurance beneficiaries.  

Life insurance can provide financial security for loved ones. Still, couples may not always discuss their beneficiaries, leaving partners with financial and emotional uncertainties. It’s evident that intentional conversation is the key to pushing the needle on beneficiary transparency.