There are two types of beneficiaries: intended and incidental.
Intended beneficiaries are the only type with standing (i.e. a legal position that bestows the right) to sue the insurer to enforce their rights under the contract. As its name implies, an intended beneficiary is one who the parties to the contract expected would benefit from its performance. Such parties include those who were named without consideration (so called “donee beneficiaries”) and those named in satisfaction of a debt (so called “creditor beneficiaries”).
An incidental beneficiary is one who only incidentally benefits because of the existence of the insurance. For instance, if a policy were payable to the policyowner’s owners estate, a creditor of the policyowner could satisfy that debt by informing the estate’s executor. All or a portion of the proceeds might incidentally be used for payment. But an incidental beneficiary never acquires rights under the life insurance policy and so cannot sue the insurer. The policy was not taken out for the party’s benefit.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM