What Is A Contingent Beneficiary In Life Insurance?

Getting a life insurance policy is an overwhelming process and all that insurance jargon can be difficult to follow, and confusing. One of the most confusing of all the terms is contingent beneficiary. 

But here’s the thing: 

This complicated word and it’s meaning are very simple and a quick rephrasing of the term makes it a much easier thing to understand and remember. In this post; we will cover what is a contingent beneficiary; when you will need one, and how beneficiaries work on a life insurance policy.

What Is A Contingent Beneficiary?A contingent beneficiary is a person or entity that will get your insurance payout if your primary beneficiaries are deceased, unable to, or refuses to receive the money. Think of it as your “secondary beneficiary”. 

So A Contingent Beneficiary Is Just The Secondary Beneficiary?Yes; By replacing the word “contingent” with “secondary” you can see that it clears things up quite a bit. The secondary beneficiary is the one that receives the death benefit payout only if the primary beneficiary is unable to receive the funds.

For example: A husband and wife get a life insurance policy on each other.  They are the Primary beneficiaries of the policies and the children would be the Secondary beneficiaries. 

What Is A Primary Beneficiary?A primary beneficiary is any person or organization; with insurable interest; that will be the first to receive a distribution of money or assets upon your death. Your beneficiary doesn’t need to be a relative, spouse, or your minor child—they can be a friend, a business partner, or even the person that cuts your hair.

Contingent Beneficiary vs. Primary BeneficiaryYou can name multiple primary beneficiaries and multiple contingent beneficiaries in your life insurance policy. Most insurance companies will allow you to put up to ten beneficiaries of each type.

For example: You might designate your spouse or partner as the primary beneficiary of a life insurance policy, and your local humane society as your secondary beneficiary. The humane society will only receive a payout distribution if your spouse is unavailable or unable to accept the policy benefits— basically if you and your beneficiary die at the same time, the humane society would get the payout.

The same person can’t be both a primary and a contingent beneficiary.

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Why Should I Designate A Contingent Or Secondary Beneficiary?Designating a secondary beneficiary protects your loved ones from a messy financial situation after your death if the primary beneficiary can’t or won’t accept the distribution of your life insurance.

In most instances, beneficiaries are given precedence over wills by the law. If there is no contingent beneficiary on your policy, your death benefit proceeds may become tied up in your estate, making them subject to estate taxes, probate, or creditors.

If that occurs, it can make it difficult for your loved ones to gain access to your insurance payout at all, let alone in a timely manner. Think of your secondary beneficiaries as a safety net that ensures your death benefit goes where you want.

How Do I Choose A Contingent Beneficiary?If you’ve already chosen your primary beneficiary, you’re already familiar with the process. Choosing your contingent beneficiary involves essentially the same steps.  Remember to consider the people that depend on you financially. Is there anyone else other than your primary beneficiary? Are you helping your parents with money? 

Do you belong to any clubs or organizations? Is there a group or charity that you support that you would like to continue supporting after your death? Any of these choices would make good secondary beneficiaries.

Can I Change My Beneficiary?Yes. As long as you are the owner of the policy you can change your beneficiary or beneficiaries as much or as often as you like. It’s as easy as contacting your insurance agency, agent or company and requesting a change of beneficiary form. They’re easy to fill out and return. Now, there are some instance where you won’t be able to change your beneficiary and that is if the owner of the policy makes them irrevocable.

What’s An Irrevocable Beneficiary?An irrevocable beneficiary is someone who was designated at the beginning of the policy as your primary beneficiary and who can never be removed from the policy as the beneficiary. Usually this type of designation is used for special situations such as making sure that you remain the beneficiary on your spouses policy The bottom line is that if you make someone an irrevocable beneficiary, there is no going back on that decision.

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Common Mistakes People Make When Picking A Contingent Beneficiary?People want to provide for those they love. Most often, couples without children designate their spouse or partner as the primary beneficiary, while parents name their children—and that’s one of the most common sources of error.  When choosing a contingent beneficiary, having minor children as designees can create problems if not done correctly.

If you want your children, or a child with special needs, as your contingency beneficiary, take the time to designate a guardian or trustee to manage the death benefit payout. If you fail to do so, the court will appoint a guardian to handle the proceeds, which can be a costly and time-consuming process which makes things even harder for your family.  Setting up a trust is something you probably should do with an attorney.

How Often Should I Review My Beneficiaries?You should review your beneficiaries after any significant life event that may affected who you want to receive your death benefits. Things like you getting a divorce, having or adopting a child, becoming involved in a charitable organization, or getting married, are all good occasions to review your life insurance policy. If you follow the above rules you should be all set in the beneficiary department.

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Taking ActionNow that you know what a contingent beneficiary is, it will be much easier for you to complete the life insurance application process. Best of all, the process doesn’t take hours. You can get instant quotes and coverage by clicking on any of the above buttons.

Frequently Asked QuestionsWhen does a contingent beneficiary receive their money?
A contingent beneficiary receives a payout only if the primary beneficiary dies, declines the benefit, or cannot be located. The contingent beneficiary becomes effective when the primary cannot fulfill their role.

Can you name more than one contingent beneficiary?
Yes, you can name multiple contingent beneficiaries and assign each a percentage of the benefit.

How do I update a contingent beneficiary?
Update a contingent beneficiary by completing a change of beneficiary form with your insurance company or financial institution.

Is a contingent beneficiary required?
No, a contingent beneficiary is not legally required, but naming one helps avoid probate if the primary beneficiary cannot accept the assets.

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