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What is a contingent beneficiary?

A contingent beneficiary helps act as a plan B in case your primary beneficiary isn't able to receive your death benefit. Here's why it matters.

Life insurance is a way to financially help protect the people you love, and contribute to their financial well-being after you've passed away. Setting up a policy includes choosing a beneficiary, the person or entity that receives your death benefit. That beneficiary is often someone close to you, such as a spouse or child. But, sometimes, things change, and that's where a contingent beneficiary comes in. A contingent beneficiary is a secondary beneficiary that acts as a backup plan for your death benefit. Here's more on what is a contingent beneficiary, the differences between a primary vs. contingent beneficiary, and the benefits of naming one.

Primary vs. contingent beneficiary

When you pass away, your beneficiary receives your death benefits. You will likely have beneficiaries named on other accounts like your retirement savings or will. The process here is the same. When choosing between beneficiary options, you can name individuals, charities, or organizations close to your heart or even create a trust—multiple options exist.

Your primary beneficiary is first in line to get your death benefits. A contingent beneficiary or secondary beneficiary (these terms are interchangeable) is your backup choice. They're second in line. So, if your primary beneficiary isn't able to receive the funds, the contingent beneficiary becomes the recipient.

How do contingent beneficiaries work?

In many cases, primary beneficiaries receive the death benefit. But we all know life is unpredictable, and there are some instances where your primary beneficiary may not be able to receive the payout, including:

  • They have passed away before you.
  • They refuse the death benefit.
  • They can't be located.

In these cases, the secondary beneficiary receives the funds. For example, it's common to name a spouse as the primary beneficiary on a life insurance policy and an adult child as the secondary beneficiary. If your spouse passed away before you, then your child gets the death benefit.

Here's how the life insurance payout process typically works:

  • Naming both a primary and contingent beneficiary during the purchasing process can help streamline the payout process if the time comes.
  • When you pass, your contingent beneficiary should contact your insurance carrier and provide proof of their identity and your passing (a death certificate usually works).
  • The insurer reviews all the documents and verifies the policy. If all is in order, the insurer issues the death benefit payout to the secondary beneficiary.

How to choose a contingent beneficiary 

You have a lot of flexibility when choosing a contingent beneficiary. In general, you can consider spouses, children, other relatives, close friends, charities, organizations, and trusts. Something to be aware of is if you name a minor, a legal guardian will oversee the funds until they are of age.

Insurable interest applies when choosing a beneficiary. It means the beneficiary must have a legitimate reason to receive the benefit, such as experiencing financial loss or hardship from your passing. In most cases, close relatives and trusted friends qualify. If you have questions, consult a lawyer for confirmation.

It's recommended that you name a contingent beneficiary when setting up your policy. However, there are a few common mistakes to avoid when naming beneficiaries. Choosing a beneficiary will ensure your death benefit is distributed exactly how you intended. Otherwise, you may not have control over where the funds go.

How many contingent beneficiaries can be named?

You can name multiple contingent beneficiaries. You can also appoint an entity or organization as the beneficiary.

You may choose to portion out your death benefit by percentage. For example, if you have three adult children, you can name each of them as contingent beneficiaries with 33% of the death benefit payout share

Can a contingent beneficiary be changed?

You can change a secondary beneficiary as long as your life insurance policy is revocable. A revocable beneficiary means you have the right to change who the beneficiary is without their consent. An irrevocable beneficiary means they can't be changed without their agreement; they have certain rights to your policy's death benefit.

Once you have your life insurance policy set, you don't want to forget about it. Regularly reviewing and updating your beneficiaries is recommended, especially after significant life changes, such as:

  • Marriage, divorce, death of a spouse.
  • The birth or adoption of a child.
  • Significant changes to your financial situation

Beyond these major life events, you may also want to review your life insurance needs as you go through the retirement and estate planning processes.

Benefits of naming a contingent beneficiary

Naming a contingent beneficiary helps protect your loved ones, ensuring your death benefit gets to the right people without major delays.

Here are a few other important advantages:

  • Simplifies the distribution process. It helps get your death benefit to the right people after your passing.
  • Helps avoid probate court. If you don't name beneficiaries, your death benefit may go through the probate process, which can be time-consuming and costly for your loved ones.
  • Adds more flexibility. If your primary beneficiary's circumstances change, a contingent beneficiary allows for a smooth distribution of the funds.

Here's a brief example of how naming beneficiaries can streamline the process and ensure your intended loved ones receive the death benefit.

Maya named her husband as the primary beneficiary on her life insurance policy and her sister as the secondary beneficiary. Unfortunately, Maya, her husband, and friend Donovan passed in a car accident. Because Maya had a contingent beneficiary listed, the death benefit went directly to her sister. Maya's friend Donovan didn't have a contingency beneficiary. So when he passed, his assets went to probate, causing delays and complications for his family.

Get the right life insurance coverage for your needs

Naming a primary and secondary beneficiary is a thoughtful way to provide for your loved ones and fulfill your final wishes. It may seem like a small detail, but choosing a contingent beneficiary adds a layer of protection to your financial legacy.

Learn more about selecting a beneficiary for your life insurance policy.

Key takeaways

  • A contingent beneficiary is your plan B if your primary beneficiary is unable to receive your death benefit. 
  • You can generally name multiple contingent beneficiaries and how the payout gets split.
  • Review and update your beneficiaries regularly, especially after major milestones or life changes.
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