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Apr 8, 20225 min

Life Insurance: What Is a Contingent Beneficiary?

A life insurance policy requires a beneficiary who receives your death benefit if you pass away while the coverage is active. This person is known as your primary beneficiary. But there’s also a contingent beneficiary. If you’re wondering just who this person is and what role they have to play in your life insurance policy, you’ve come to the right place? That’s the purpose of this guide–to tell you everything there is to know about a contingent beneficiary. Read on to find out more.

Contingent beneficiary definition

Suppose your primary life insurance beneficiary dies before you. In that case, the funds you leave behind when you pass away are given to your estate–unless you name a contingent beneficiary on the policy. A contingent beneficiary takes over from the primary beneficiary and receives your death benefit.

There is even a scenario where the primary beneficiary doesn’t need to die for the contingent beneficiary to receive the death benefit. The primary could refuse the death benefit, which would see the continent become the rightful receiver.

Essentially, the contingent beneficiary is the specified insurance contract holder and gets the death benefit if the primary can’t accept, usually because they’ve passed away. You can also name more than one contingent beneficiary, with each one designated a specific percentage of the death benefit.

What are the benefits of naming a contingent beneficiary?

A will determines the distribution of assets within your estate, with most of them going through probate. With a life insurance policy, however, funds are given directly to the beneficiaries, and there’s no need for probate.

That could all change if you only have a primary beneficiary and are unable to claim the death benefit. Without a contingent beneficiary, your insurance payout will end up going to the estate and through probate. That means it could be subject to estate taxes and debt collection. A judge will also decide who gets the payout, which could lead to further complications.

The process can also be lengthy, sometimes lasting months on end. It’s a scenario you’ll want your loved ones to avoid, especially as they could end up receiving less by the time everything goes through probate.

If you name a contingent beneficiary and your primary one cannot claim the death benefit, you can steer clear of probate altogether. The death benefit is distributed to the contingent or contingents named on the insurance policy, and you know exactly what is going to where and to whom.

How to name a contingent beneficiary in your life insurance policy

After deciding on a life insurance policy, be it term or permanent, you’ll be asked to name one or more primary beneficiaries. Along with the primary, the form should also include a section asking if you want to name a contingent beneficiary.

If you decide to add a contingent, you’ll need to enter some basic information about them, including:

  • Their full name
  • Social security number
  • Contact details

It’s at this point when you can decide to name more than one contingent and designate a percentage of your death benefit to each one much in the same way you can with a primary beneficiary.

The policy could also include an option to name multiple beneficiary tiers, such as tertiary, quaternary, etcetera. To illustrate, a tertiary beneficiary receives the death benefit if both the primary and contingent pass away before you.

When assigning a contingent beneficiary, you should ensure they are specified clearly in all the associated paperwork. Doing so makes the entire process of designating the beneficiary of the death benefit a more seamless process.

It’s also helpful if you give all beneficiaries a copy of your life insurance policy. They should also know how to contact each other and your life insurance company in the event of your death. Whether primary or contingent, beneficiaries must submit a death certificate to the life insurance company to claim the death benefit.

Updating your beneficiaries

As well as giving beneficiaries a copy of your life insurance policy, it’s important to keep them up to date throughout the policy’s term. Take actions like reviewing your beneficiary designations when you experience major life events, such as marriage, divorce, childbirth, or the death of a loved one.

You can also change your contingent at any time if you decide to name someone else. Simply call your insurance provider and request a change via the beneficiary designation form. This is helpful as it doesn’t tie you into keeping the same person on the policy should circumstances change for you or the contingent.

Who can be named as a contingent beneficiary?

Common beneficiaries include spouses, family members, adult children, a trust, your company, a charity, an estate, and parents in some cases. Essentially, anyone can be a beneficiary on your life insurance policy, as long you’re happy with them being named.

Who should be a contingent beneficiary?

Just because anyone can be named as a contingent beneficiary doesn’t mean they should. Picking a contingent involves naming someone you’d like to financially support after you pass away.

Most policyholders opt for a family member, with the spouse typically the primary beneficiary and perhaps an adult child named as the contingent. Essentially, it’s down to you to decide what works best for everyone involved.

If you’re unsure of who to include as the contingent, it’s worth sitting down with your family and having a discussion about working out a favorable scenario. You should also consult a lawyer if a minor is named as a beneficiary, and you’ll need to name a custodian if the child hasn’t reached legal age at your time of passing.

Primary beneficiaries vs. contingent beneficiaries

The primary beneficiary will always be the one who receives the death benefit if they're alive at the time of the policyholder's passing and are willing to accept it. Contingent beneficiaries only spring into action when all primary beneficiaries have passed away or can't receive the death benefit.

If there are multiple primaries on the policy, but one of them dies, the insurer splits the death benefit between the remaining primary beneficiaries. For example, if your spouse, sibling, friend, and parent are named as the primary beneficiary, everyone gets 25% of the death benefit.

However, if the parent passes away, the three remaining primaries would receive 33% each. The only scenario where the contingent receives the death benefit is if all the primaries pass away too.

Essentially, the only real difference between a primary and contingent is that the primary is first in line to receive your death benefit. If for any reason they are unable to claim it, the contingent comes in and becomes the rightful receiver.

Do you need to have a contingent beneficiary?

There’s no mandatory stipulation requiring you to name a contingent beneficiary. And if you have multiple primaries on your policy, you may decide that a contingent isn’t worth it. However, naming a contingent adds extra peace of mind and is especially helpful if you only have one primary.

With a contingent, you can forgo many potential issues that could arise if you die and your primary predeceases you. The last thing you want is to create issues after you pass away, with loved ones potentially going through a lengthy probate period before getting clarity over what receiving what you’ve left behind.

Naming a contingent ensures that your death benefit goes to the right person if the primary beneficiary can't receive it. That gives you and your loved ones greater peace of mind and less hassle, as you'll be safe in the knowledge that everything is well looked after when you pass away.

In conclusion: putting a contingency plan in place

A life insurance policy is a smart way to safeguard those you love when you die. And naming a contingent beneficiary along with a primary one means you've got all bases covered and can relax knowing the people who mean the most to you will be well looked after when you're not around. Adding a contingent is a straightforward process, and it can stop probate and make everything that little bit easier.

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