What is a Contingent Beneficiary for a Life Insurance Policy?

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Contingent beneficiaries are basically the backup beneficiaries that would receive your life insurance death benefit if all of your primary beneficiaries were unable to make a claim. You want to assign a contingent beneficiary as your primary beneficiaries could die or somehow be impaired, and it can be a hassle for your family if your life insurance proceeds are added to your estate.

Who is a Life Insurance Beneficiary?

When you purchase a life insurance policy, you’ll be asked to assign beneficiaries. Your beneficiaries are the people or entities that would receive the payout, or death benefit, if you pass away during the period of coverage. Beneficiaries can be:

  • Your spouse
  • Family members
  • Adult children
  • A trust
  • Your company
  • A charity
  • An estate

The only entities that can’t be beneficiaries are those that don’t have the legal power to claim an asset. Pets, for example, can’t be a beneficiary. Neither can minor children, so the money would need to be provided to a trust or guardian that would oversee it until the child becomes an adult.

Unless beneficiary assignment are irrevocable, which would be specified on your life insurance policy, you can change your beneficiaries whenever you choose. Typically, you’ll want to review your beneficiary choices every three to five years or after major life events (such as a divorce, a death in the family or a child coming of age).

Primary vs Contingent Beneficiaries

Primary beneficiaries are the people or entities that you intend to receive your life insurance death benefit in the case that everything goes according to plan. Contingent beneficiaries, or secondary beneficiaries, are the people that would receive your life insurance proceeds in the case that all of your primary beneficiaries died or were for some reason unable to claim the payout. For example, if your spouse was your sole primary beneficiary and you both died in a car crash, your contingent beneficiaries would be able to claim the death benefit. Similarly, you can also assign tertiary beneficiaries that would be able to claim your death benefit in the case that all your primary and contingent beneficiaries passed away.

For both primary and contingent beneficiaries, you can assign as many beneficiaries as you want. The total percentage of life insurance proceeds assigned to each of the primary beneficiaries just needs to total 100%, as is the case with contingent beneficiaries as well.

To illustrate, say you are married, have three children but also have a financially dependent brother. You could assign the following beneficiary structure for your $600,000 death benefit:

PersonRelationshipBeneficiary Level% of Death Benefit
LauraSpousePrimary50%
JamesBrotherPrimary50%
AnnChildContingent50%
LeeChildContingent25%
RobChildContingent25%

Now, if you passed away, the death benefit would be distributed based upon who was still alive and able to claim the proceeds:

  • Only you pass away - Laura and James would each receive $300,000.
  • You and Laura pass away - James would receive the entire $600,000 death benefit.
  • You, Laura and James pass away - Ann could claim $300,000 of the death benefit. Lee and Rob would each receive $150,000.
  • You, Laura, James and Rob pass away - Ann would get $400,000 of the death benefit while Lee would get $200,000.

As you can see, the only real difference between primary and contingent beneficiaries is that primary beneficiaries have the first claim to your life insurance proceeds.

Contingent beneficiaries can also assist primary beneficiaries in the case your primary beneficiary isn’t legally able to claim or manage the money. Say your spouse was your primary beneficiary but was somehow incapacitated or determined to be not fit to claim the life insurance benefit. If your adult child was a secondary beneficiary, they could claim the proceeds on the condition that they assist in the care of your spouse.

How to Assign and Assist Your Contingent Beneficiaries

When you assign contingent beneficiaries for your life insurance policy, make sure they’re specified clearly in all paperwork. Typically, this will involve providing each beneficiary’s full name and social security number (or tax ID number in the case of an organization). This is important as you don’t want them to face hurdles when trying to claim the life insurance proceeds. A common mistake when assigning beneficiaries is to use a title like “wife” which insurers don’t know how to interpret if you get divorced and remarried.

As with primary beneficiaries, contingent beneficiaries should be provided with a copy of your life insurance policy, as this will smooth the claims process. However, contingent beneficiaries also need to know who all of your primary beneficiaries are, as they will need to prove that all primary beneficiaries are unable to make a claim. This might require obtaining copies of the death certificate of each primary beneficiary, as well as yours. Therefore, contingent beneficiaries should be able to contact the families of each primary beneficiary.

Why Have a Contingent Beneficiary?

While your will determines the distribution of assets that are part of your estate, life insurance proceeds bypass this procedure and are made available directly to your beneficiaries. However, if you don’t list a life insurance beneficiary, or they all are unable to claim the death benefit, the money will become part of your estate and have to go through probate.

Depending on your estate size and complexity, probate can take several months. The process is extensive as it involves using your estate to pay off creditors and then determine the appropriate person to which any remaining assets should be provided. Therefore, if you don’t have a named life insurance beneficiary, or they’re deceased, your family may never receive the death benefit you paid to have in place. The money might be used up entirely in paying off loans or it might be distributed to someone other than you intended.

In addition, if a beneficiary isn’t assigned, or your beneficiary isn’t legally able to claim the proceeds, it often leads to infighting in families. This is why it’s incredibly important to have both primary and contingent beneficiaries that are qualified to claim the death benefit.

If you don’t have any dependents or people that you’d want to provide financial assistance to in the case your primary beneficiaries passed away, you may want to assign a charity as your contingent or tertiary beneficiary. For example, if you bought life insurance to make sure your spouse would be taken care of financially and you don’t have children, you may want the death benefit to go towards a non-profit. Otherwise, the money would end up in probate alongside the rest of your assets.

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