Updated June 29, 2021|4 min read
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But if all of your primary life insurance beneficiaries die and are unable to collect on your policy, the funds are paid into your estate — unless you name a contingent beneficiary. Naming at least one contingent beneficiary keeps your estate plan intact by protecting the payout from a lengthy legal process or being taken by creditors.
If all of your primary beneficiaries predecease you, the death benefit goes to your contingent beneficiaries
Without a contingent beneficiary, your insurance payout goes through probate and may be subject to estate taxes or debt collection
Any person or organization with insurable interest can be a contingent beneficiary
Multiple contingent beneficiaries can be listed in a life insurance policy
A contingent beneficiary is the person who receives the death benefit if all of the primary beneficiaries have passed away and cannot accept the funds. The contingent beneficiary only gets the death benefit if all the primary beneficiaries have passed away.
Naming a contingent beneficiary ensures that the life insurance proceeds are distributed according to your wishes after you pass away. You pay for life insurance so that it protects the financial health of your loved ones — listing a contingent beneficiary protects against that life insurance money from going to someone else.
If all of your primary beneficiaries die before or at the same time as you, but you’ve listed contingent beneficiaries, the death benefit is distributed to the contingent beneficiaries you named.
But 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. Once the payout is part of your estate, it’s subject to estate taxes and probate. During probate, a judge decides who gets the payout — a process that can take months and reduce the amount of money your loved ones eventually receive.
When you purchase your life insurance policy, you’ll be prompted to name a primary beneficiary and a contingent beneficiary on the beneficiary designation form.
You’ll need to provide some basic details about each beneficiary, including:
Social Security number
You can name more than one contingent beneficiary and designate each to receive a percentage of your death benefit, just as you would with primary beneficiaries. Your policy may also allow you to name people in multiple beneficiary tiers (tertiary, quaternary, and so on). A tertiary beneficiary would receive the death benefit if both the primary and contingent beneficiaries have predeceased the insured, but primary and contingent designations are usually enough for most people.
It’s important to keep your primary and contingent beneficiaries up to date throughout your policy’s term. 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.
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Anyone with insurable interest can be named a primary or contingent life insurance beneficiary, including:
An organization or charity
Your children (with caveats)
Pick a contingent beneficiary who depends on your financial support or would support your family if you die. Most people choose a close family member or the guardian of their children. However, your contingent beneficiary shouldn’t be the person who would ideally get the death benefit — that person should be listed as your primary beneficiary.
Consult with a lawyer or financial advisor before naming a minor child as a beneficiary on your insurance policy. If your beneficiary has not reached the age of majority, you’ll need to designate a custodian for the funds or create a trust for the child to receive the death benefit when they come of age.
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Contingent beneficiaries do not receive any part of the death benefit unless all primary beneficiaries have passed away.
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 list your spouse, your sibling, and a friend as your policy’s beneficiaries, each would receive 33%. But if your friend dies before you and you don’t update your beneficiary designations, your spouse and your sibling will each receive 50% of your insurance proceeds.
Some people list a per stirpes death benefit designation, which will pay out to your beneficiary’s next of kin if they die before you. In this instance, 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 ensures 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 beneficiary 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 advisor or insurance agent can help you set up the right option for you and all of your beneficiaries.
A primary beneficiary receives the life insurance death benefit if you die while your policy is active. If your primary beneficiary is unable to claim the death benefit, only then will your policy payout to your contingent beneficiary.
You can name anyone who has insurable interest and who is not already a primary beneficiary on your policy as a contingent beneficiary.
You do not need to have a contingent beneficiary, but it is beneficial to have one listed in your policy. Listing a contingent beneficiary protects the life insurance funds from probate if your primary beneficiaries predecease you.
If you do not name a contingent beneficiary and all your primary beneficiaries die before you, then the death benefit will pay out to your estate. This can be avoided by updating your policy often, especially after any major life events.