Definition
The finance term absolute beneficiary refers to a provision within a policy that states the insured cannot change the beneficiary without their consent. While absolute beneficiaries are more common in life insurance policies, this provision can also apply to trusts as well as employee benefits such as a pension plan.
Explanation
Normally, the insured maintains the right to change the beneficiary of their policy. Also known as an irrevocable beneficiary, an absolute beneficiary is one that cannot be changed unless the insured obtains permission from the beneficiary. In addition to life insurance policies, absolute beneficiaries can also be designated in trusts and employee benefits that are oftentimes transferable to a spouse such as a pension plan.
Divorce settlements and lawsuits can often result in the naming of an irrevocable beneficiary. Since the policyholder, pension plan participant, or creator of a trust (grantor) relinquishes their control over the asset to the absolute beneficiary, the process often involves a meeting with a professional such as a benefits administrator or an attorney.