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What is a contingent beneficiary?
When you buy a life insurance policy, you choose a person that should receive the death benefit if you die. This person is called the the life insurance beneficiary, and is essentially the reason you buy the life insurance policy, so that they get a lump-sum payment in the event of your death.
But life insurance beneficiaries can die too, and that's why life insurance companies encourage you to also name a contingent beneficiary.
A contingent beneficiary is the person you designate to get the life insurance money in case your primary life insurance beneficiary is unable to collect on your life insurance policy.
A primary beneficiary is the person or organization you name to receive the death benefit of your life insurance if you die. You can name more than one primary beneficiary.
A contingent beneficiary is a person or organization you name to receive the death benefit of your life insurance policy if the primary beneficiary has died or is otherwise unable to receive the death benefit.
You can name more than one contingent beneficiary. The secondary beneficiary will receive the benefit if the primary beneficiary is dead; the tertiary beneficiary will receive the benefit if the primary and the secondary beneficiaries are dead, and so on.
If the primary beneficiary is alive when you die, the death benefit will go them, and your contingent beneficiary or contingent beneficiaries will not be eligible for any amount of the death benefit.
Anyone can be named a life insurance beneficiary, and anyone can be named a contingent beneficiary, including:
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It’s also possible to leave your life insurance policy to multiple people. This entails naming more than one primary beneficiary or co-beneficiaries.
You can designate how you want the benefit to paid out to the beneficiaries — split evenly, in thirds, or another designation.
It’s also possible to name your beneficiaries per stirpes, or “by branch.” This means that the heirs of your co-beneficiaries would get the death benefit if one of the primary beneficiaries died.
For example, if you have two adult children with families and you wanted to leave life insurance proceeds to each child's family even if the child were to die, per stirpes would be a way do that.
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 branches would still receive equal parts of the death benefit.
A life insurance advisor or financial advisor can help you set up your beneficiaries per stirpes.
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 can change your beneficiary designation any time by contacting your insurance carrier (or your agent and broker) and requesting a change of beneficiary designation form.
On the form, you'll want to include your beneficiaries’ full names, plus each beneficiary's social security number.
If you don’t have a contingent beneficiary and your primary beneficiary is unable to claim the death benefit, the death benefit would be payable to your estate. The drawback to this is that, once the benefit is part of the estate, it is subject to probate, which means the court may decide who gets the benefit, a process that can take many months.
Having a designated contingent beneficiary is important to ensure that the full death benefit goes to those who you intend to have it.
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