Q

What is a contingent beneficiary?

A

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

When you buy a life insurance policy, you choose at least one person, entity, or organization to receive the policy’s death benefit if you die. This is your primary life insurance beneficiary.

But life insurance beneficiaries can die, or your relationships can change, so insurers encourage you to name at least one contingent beneficiary in addition to the primary beneficiaries listed in 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 saves the payout from getting delayed by a lengthy legal process or being taken by creditors.

KEY TAKEAWAYS

  • 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

Do you need a contingent beneficiary?

Your primary beneficiary files a claim after you die to collect your policy’s death benefit. You can name more than one primary beneficiary, and assign a percentage of your insurance payout to each co-beneficiary.

Naming a contingent beneficiary ensures that you control where your life insurance proceeds go after you pass away. 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 as you would with 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. Once the payout is part of your estate, it’s subject to estate taxes and probate — meaning a judge decides who gets the payout — a process that can take months and reduce the amount of money your loved ones eventually receive.

Naming 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 the beneficiary designation form.

You’ll need to provide some basic details about each beneficiary, including:

  • Full name

  • Social Security number

  • Contact information

Your policy may also allow you to name people in multiple beneficiary tiers (tertiary, quaternary, and so on), but primary and contingent designations are enough for most people.

Updating your beneficiaries

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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Who should be a contingent beneficiary?

Anyone with insurable interest can be named a primary or contingent life insurance beneficiary, including:

  • Your spouse

  • Other relatives

  • Non-relatives

  • An organization or charity

  • A trust

  • 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.

Consult with a lawyer or financial advisor when 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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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 evenly split your payout between your spouse, your sibling, and a friend, each would receive 33%. But if your friend dies before you, your spouse and your sibling will each receive 50% of your insurance proceeds, unless you update your beneficiary designations. Contingent beneficiaries do not receive any part of the death benefit unless all primary beneficiaries have passed away.

Per stirpes vs. per capita beneficiary

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 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.

Contingent beneficiary FAQs

What is the difference between primary and contingent beneficiary?

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 beneficiaries.

Who can you name as your contingent beneficiary?

You can name anyone who has insurable interest and who is not already a primary beneficiary on your policy.

What happens if there is no contingent beneficiary?

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.