Beneficiary: Overview, definition, and example
What is a beneficiary?
A beneficiary is an individual, organization, or entity that is designated to receive benefits, assets, or rights under a legal agreement, such as a trust, will, insurance policy, or contract. The beneficiary is the party for whom the agreement is created or who stands to gain from the fulfillment of the terms outlined in the agreement.
For example, in an insurance policy, the beneficiary is the person or entity who will receive the payout upon the occurrence of a specified event, such as the policyholder's death.
Why is a beneficiary important?
Beneficiaries are important because they are the focal point of many legal and financial arrangements, ensuring that the intended individuals or entities receive the benefits or rights as planned. Clearly identifying beneficiaries in agreements provides clarity, avoids disputes, and ensures the smooth transfer of benefits or obligations.
For businesses, beneficiaries are often named in contracts to specify who will receive payments, goods, or services, ensuring that contractual obligations are fulfilled appropriately.
Understanding a beneficiary through an example
Life insurance policy: A person purchases a life insurance policy and names their spouse as the beneficiary. Upon the policyholder’s death, the insurance company pays the spouse the death benefit outlined in the policy.
Trust agreement: A parent creates a trust for their child’s education. The child is the named beneficiary of the trust and is entitled to receive funds to cover tuition and other education-related expenses as specified in the trust document.
Business contract: A construction company enters into a contract with a municipality to build a park. The municipality, as the beneficiary of the contract, gains the right to receive the completed park once the project is finished.
An example of a beneficiary clause
Here’s how a beneficiary clause might appear in an agreement:
“The Beneficiary under this Agreement shall be [Insert Name or Description]. The Beneficiary is entitled to receive the benefits, payments, or assets specified herein upon fulfillment of the conditions outlined in this Agreement. Any changes to the designation of the Beneficiary must be made in writing and agreed upon by all Parties.”
Conclusion
A beneficiary is the designated party entitled to receive benefits or rights under a legal agreement. For individuals, identifying beneficiaries ensures that assets or benefits are distributed as intended. For businesses, naming beneficiaries provides clarity about who is entitled to receive the outcomes of contractual obligations. Including a well-defined beneficiary clause in agreements reduces ambiguity and ensures that the rightful parties receive the benefits as intended.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.