What is a contingent beneficiary?

How do contingent beneficiaries work?

Your primary life insurance beneficiaries are first in line to receive your payout. Policyowners typically name their closest relatives and/or favorite organizations as their primary beneficiaries. But if all your primary beneficiaries have already died when you pass away, your designated contingent beneficiary will receive the payout instead. Just like with a primary beneficiary, you can name any person or organization as a contingent beneficiary, and you may have one or several.

Do you need a contingent beneficiary?

Naming a contingent beneficiary may not be required when you purchase life insurance, but it can help make sure someone you care about receives your death benefit in case your primary beneficiaries no longer can.

What's the difference between primary and contingent beneficiaries?

A primary beneficiary is the first one to inherit your assets after you die. Contingent beneficiaries are individuals who inherit assets if the primary beneficiaries are unable to receive them.

Can the same person be a primary and contingent beneficiary?

They can, but if they are to receive the same assets, there is no point in naming them as both. Some financial and estate planners believe that designating the same person as both a primary and contingent beneficiary is a mistake made in estate planning.

When do contingent beneficiaries get the insurance proceeds?

When you establish contingent or secondary beneficiaries, you help the payout process move swiftly while keeping your benefit intact. Here's how the contingent beneficiary process works:

1. When you purchase your policy, choose at least one contingent beneficiary in addition to your primary beneficiaries. You may want to review your policy and update your beneficiaries every few years or when major life events occur.
2. When you pass away with an active policy, your insurer will reach out to the primary beneficiaries using the contact information you've provided.
3. If the insurer can confirm that all primary beneficiaries are no longer living, can't be found, or they turn down the death benefit proceeds, the insurer will move on to contacting your contingent beneficiaries. Those living will receive your death benefit as you've instructed in your policy.

Who should you name as your contingent beneficiaries?

While primary beneficiaries are typically those closest to you who would be most affected by your death, such as your spouse and any dependents, contingent beneficiaries might be further removed from you. However, they should still be individuals or organizations you'd entrust with your payout.

If you don't want to leave your death benefit to family members or close friends who aren't already your primary beneficiaries, you can select one or more organizations as your secondary beneficiaries. This allows you to leave a legacy via your death benefit if your primary beneficiaries are no longer living.

Can you have multiple contingent beneficiaries?

Yes. The number of beneficiaries you designate is entirely up to you. Similar to electing primary beneficiaries, you can choose multiple contingent beneficiaries and set a percentage or amount of your payout for each to receive. Remember, though, that contingent beneficiaries act as a backup plan for your death benefit; they only receive a payout if all primary beneficiaries are confirmed as deceased.

Updating your contingent beneficiaries

To update your beneficiaries, review your beneficiary designations throughout the entirety of your policy's term to keep both your primary and contingent beneficiaries current. After major life events, such as marriage, divorce, or the death of a loved one, check your policy to see if you want to make changes.

By reviewing your beneficiaries regularly, you can help ensure a smooth payout process after your passing. Remember to notify new beneficiaries when you name them on your policy, and make sure they know who your insurer is; that way they know to claim the payout when you pass.