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What Is a Contingent Beneficiary in Life Insurance?


It’s wise to select multiple beneficiaries when purchasing life insurance policies. This ensures that your family or loved ones can cover any financial obligations after you’ve passed away. The death proceeds from life insurance policies can have multiple uses, such as paying funeral costs, paying off debt, completing mortgage payments and more. But there’s no guarantee that your primary beneficiaries will be able to claim your policy’s benefit. This is where contingent beneficiaries come in. Functioning as secondary options, these beneficiaries can use the death benefit to pay any of your remaining debts, and by receiving the benefit they keep your assets from going through probate. In this guide, we tell you everything you need to know about the role of a contingent beneficiary.

A financial professional can help you protect your assets and plan long-term savings goals. Find a financial advisor today.

What Is a Contingent Beneficiary?

Typically used for an insurance policy, retirement account or will, a contingent beneficiary is a person or entity a policyholder names to receive their account’s benefits if the primary beneficiary is unable to do so. Even if the primary beneficiary hasn’t died and is able to be located, it’s possible that they still might refuse the policy’s death benefit. This is why contingent beneficiaries function as alternatives to primary beneficiaries.

You may be wondering who, or what, you can select as your contingent beneficiaries. You can select your spouse, adult children, other adult family members, trusts, estates, charities or businesses.

How to Name Your Beneficiaries

Should you assign a contingent beneficiary?

You can usually assign your beneficiaries in person or online through your insurance company or employer. If you’re selecting a person, or persons, it’s important to note that each person will need to meet their state’s age of majority to be listed as beneficiaries. The mandated ages in most states are 18 or 21. If you choose a minor as a beneficiary, a legal guardian must be appointed to manage the money until the child reaches the legal age of majority.

When assigning claimants, you’ll need to be specific with the information you provide. For a person, you’ll need to provide their relationship to you, as well as things like their full name and Social Security number. If you decide to name a charitable organization or nonprofit as a beneficiary, you’ll need to provide the charity’s full name and ID and list what percentage of your death benefit goes to the entity.

Contingent vs. Primary Beneficiaries

As mentioned earlier, primary beneficiaries are the persons or entities first in line to receive your insurance policy’s death benefit once you die. You can choose multiple primary beneficiaries and specify how the death benefit is divided among them. Contingent beneficiaries function as the backup recipients and protect your assets from probate if something were to happen to your primary beneficiaries.

For instance, if your niece serves as the sole primary beneficiary for your $500,000 policy and she predeceases you, your contingent beneficiaries would therefore become the claimants of your policy’s proceeds. Let’s say your contingent beneficiaries are two close friends. If you assigned an even split between them in your insurance policy, they’d both receive a lump sum of $250,000. The outcome would also be the same if your niece either refused to accept the death benefit or could not be located. However, if your contingent beneficiaries also aren’t able to accept your death benefit, you can select a tertiary beneficiary.

How to Change Beneficiaries

You can normally change your policy’s recipients by contacting your insurance company. But if you’ve opened a group life insurance policy through your employer, you’ll need to contact your employer. Life insurance policies offer the luxury of changing beneficiaries, but other vehicles don’t. Even if you aren’t planning on changing beneficiaries, you’ll still need to regularly check your policy to ensure the information for your claimants is updated.

Another thing to consider is that you can only change beneficiaries if you’re the sole owner of your life insurance policy. You won’t be able to adjust this information if you’ve transferred ownership of your policy to another individual.

Should You Choose a Contingent Beneficiary?

Should you assign a contingent beneficiary?

Life can be unpredictable, so it may not be a bad idea to select secondary beneficiaries just in case something happens to your primary recipients. But again, this decision depends on exactly how much financial safety you’re looking for following your death. If, for instance, your spouse predeceases you, refuses your policy’s death benefit or can’t be located, contingent beneficiaries could provide family and loved ones with money to cover your liabilities after your death.

Bottom Line

Contingent beneficiaries function as a secondary level of security in the world of life insurance. They are the second-in-line persons or entities you’ve designated to receive your death benefit if your primary beneficiary is unable or unwilling to. A contingent beneficiary can keep your assets out of probate and use the death benefit to pay any remaining debts you may have. As you assess your current financial situation, financial obligations and long-term goals, you’ll want to determine whether this additional step makes sense.

Insurance Planning Tips for Beginners

  • Consider working with a financial advisor to build a plan for your insurance. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Term life insurance and whole, or permanent, life insurance are the two primary types of life insurance. Term life policies cover you for specific periods of time, while whole life insurance policies cover you for life. Therefore, it’s useful to select the policy that best aligns with your financial situation and long-term goals. Though the world of insurance can be intimidating, it’s better to start planning sooner rather than later. Consider our guide on the five mistakes to avoid when buying life insurance.

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