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Q

What is a contingent beneficiary?

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A

A contingent beneficiary receives your life insurance death benefit if your primary beneficiary dies. Naming one can keep the benefit out of probate court.

Amanda Shih author photoLogan Sachon

Amanda Shih & Logan Sachon

Published August 21, 2020

KEY TAKEAWAYS

  • If all of your primary beneficiaries predecease you, the death benefit goes to any named contingent beneficiaries

  • Without a contingent beneficiary, your insurance payout goes through probate

  • Any person or organization can be a contingent beneficiary, though there are some additional steps if you choose a minor child

When you buy a life insurance policy, you choose at least one person or organization to receive the policy’s death benefit if you die. These are your primary life insurance beneficiaries, and are essentially the reason you buy the life insurance policy: so that they get financial support in the event of your death.

But life insurance beneficiaries can die too, and that's why insurers encourage you to name at least one contingent beneficiary in addition to the primary beneficiaries of your policy. A contingent beneficiary gets your life insurance payout if your primary beneficiary is unable to collect on your policy. Naming a contingent beneficiary can save the payout from getting delayed by a lengthy legal process.

IN THIS ARTICLE

Do you need a contingent beneficiary?

Naming a contingent beneficiary ensures that you control where your life insurance proceeds go after you pass away. By adding a primary beneficiary to your insurance policy, you designate them to file a claim after you die and receive your policy’s death benefit. You can name more than one primary beneficiary, and assign a percentage of your insurance payout to each of those co-beneficiaries.

If all of your primary beneficiaries die before or at the same time as you, the death benefit is distributed to any contingent beneficiaries you named. You can name more than one contingent beneficiary and designate each to receive a percentage of your death benefit, just like primary beneficiaries.

If you don’t name a contingent beneficiary and your primary beneficiary is unable to claim the death benefit, the insurance company pays the benefit to your estate. But once the payout is part of your estate, it’s subject to probate — meaning a judge decides who gets the payout — a process that can take months.

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How to name a contingent beneficiary for your life insurance policy

When you purchase your life insurance policy, you’ll be prompted to name a primary beneficiary and a contingent beneficiary on a beneficiary designation form. You’ll need to provide some basic details about each beneficiary, including their full name, Social Security number, and contact information.

It’s important to keep your primary and contingent beneficiaries up to date so that your benefit goes to the right people if you die and so your proceeds don’t end up in probate court. Review your beneficiary designations (and your coverage in general) any time you experience a major life event like a marriage, divorce, childbirth, or the death of a loved one. You can change your beneficiary designation at any time by contacting your insurance provider (or your agent or broker) and requesting a change of beneficiary designation form.

If you’re concerned about both your primary and contingent beneficiary dying before you, your policy may allow you to name people in multiple beneficiary tiers (tertiary, quaternary, and so on), but primary and contingent designations are enough for most individuals.

Who should be a contingent beneficiary?

Anyone can be named a primary life insurance beneficiary, and anyone can be named a contingent beneficiary, including:

  • Your spouse
  • Other relatives
  • Non-relatives
  • An organization or charity
  • A trust
  • Your kids

Pick a contingent beneficiary who would benefit from your financial support or be a support to your family if you die. Most people choose a close family member or friend, or name their child or the guardian of their children.

(Note: If you name a minor child as a beneficiary on your insurance policy, you also need to designate a custodian for the funds or create a trust to receive the death benefit and transfer it to the child when they come of age.)

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What if you have multiple primary beneficiaries and one dies?

Life insurance policies default to a per capita death benefit, which means that if you have multiple primary beneficiaries and one of them dies, the provider will evenly split the deceased’s portion of the death benefit between the remaining primary beneficiaries. For example, if you assign 50% of your payout to your spouse, 40% to your sibling, and 10% to a friend, but your friend dies before you, your spouse and your sibling will receive 55% and 45% of your insurance proceeds, respectively, unless you update your beneficiary designations. Contingent beneficiaries do not receive any part of the death benefit unless all primary beneficiaries have passed away.

A per capita death benefit with contingent beneficiaries is the best option for most people. But it is possible to direct one primary beneficiary’s portion of your death benefit to their next of kin, known as a per stirpes death benefit. This is the right choice if, for example, you have two adult children with their own families and you want to ensure each family receives life insurance proceeds, even if your child predeceases you.

If your children are simply co-beneficiaries and one of them dies, the remaining co-beneficiary would receive the full death benefit amount. But if you’ve named your co-beneficiaries per stirpes, then both families would still receive equal parts of the death benefit.

Naming a contingent beneficiary is a way to ensure that your beneficiaries get financial support when you’re gone. Ideally your primary beneficiary would never predecease you, but life insurance is about safeguarding your loved ones from worst case scenarios. Designating a contingent, whether it’s a family member or charitable organization, will save your loved ones from going through a lengthy and complicated probate process while grieving and managing other end-of-life expenses. No matter how you want to assign your death benefit, a financial adviser or insurance agent can help you choose and set up the right option for you and all of your beneficiaries.

Insurance Expert

Amanda Shih

Insurance Expert

Amanda Shih is an insurance editor at Policygenius in New York City. Previously, she worked in nonfiction book publishing and freelance content marketing. Amanda has a B.A. in literature and communication from New York University.

Insurance Expert

Logan Sachon

Insurance Expert

Logan Sachon is the co-founder of The Billfold, a groundbreaking personal finance site for millennials that was named one of Time's 25 Best Blogs of 2012. Her work has been published in New York Magazine, Glamour, The Guardian, BuzzFeed and more.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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