How does a beneficiary differ from an insured in a life insurance policy?

In a life insurance policy, the primary distinction between the beneficiary and the insured is based on the roles they play regarding the policy's benefits. The beneficiary is the individual or entity designated to receive the death benefit upon the death of the insured. This means that when the insured passes away, the insurance company pays the stipulated amount to the beneficiary, providing them financial support or security as designated by the insured.

On the other hand, the insured is the person whose life is covered by the policy. This individual does not receive the death benefit; instead, they are the one for whom the insurance coverage is intended to provide protection. The insured may also be responsible for paying the policy premiums, but their primary purpose in the context of the policy is being the life that the insurance protects.

This distinction is essential for understanding the functionality of life insurance and the roles of involved parties. The beneficiary does not need to be a family member; they could be a friend, a business, or a trust, hence why stating that the beneficiary is always a family member is inaccurate. While the insured does have the ability to change the beneficiary at any time, this is not a defining characteristic that differentiates their role in context of the death benefit.