Adding a Contingent Life Insurance Beneficiary to Your Plan

In this article...
  • A contingent life insurance beneficiary receives the death benefit if your primary beneficiary can't. Learn why you should designate a contingent beneficiary.

By naming one or more contingent life insurance beneficiaries, you can minimize the risk of having your life insurance policy go unclaimed and potentially avoid the costly, time-consuming probate process. In this article, you’ll learn the difference between primary and contingent beneficiaries and why you should be sure to designate both in your policy.

What Is a Contingent Life Insurance Beneficiary?

A contingent beneficiary on a life insurance policy is a person or entity that receives the plan’s death benefit if the primary beneficiary or beneficiaries can’t be located, refuse the payout or die before the insured individual does. Payout to a secondary beneficiary may be governed by specific terms or conditions established in the life insurance policy or the insured’s last will and testament.

Who Can You Name as a Contingent Beneficiary?

Contingent beneficiaries can fall into the following categories:

  • People
  • Trusts
  • Estates
  • Charities and other nonprofit organizations

Individuals named as contingent beneficiaries are often immediate family members or relatives other than spouses. Sometimes close friends of the insured are named. You may designate one or more contingent beneficiaries, although the percentage of the death benefit allotted to each beneficiary must add up to a total of 100% of the payout.

Individuals or entities named as contingent beneficiaries must have the legal authority to accept the payout directly. If the policyholder names a minor as the contingent beneficiary, a legal guardian must be appointed to accept the payment for them and oversee the funds until the child turns 18 or 21, depending on the state law.  

Pets typically can’t be named as beneficiaries. However, you can designate a caretaker or guardian for your pet — or set up a trust for your pet — and name that person or trust as the beneficiary of a life insurance policy.

What Is the Difference Between Primary and Contingent on Life Insurance?

The primary beneficiary on a life insurance policy is the person or entity who is first in line to receive the plan’s death benefit if the insured individual dies. There may be multiple primary beneficiaries on a policy. The contingent beneficiary is the next one in line for benefits, and typically receives the payout if the primary beneficiary can’t be located, refuses the payout or predeceases the insured. There may also be multiple contingent beneficiaries on a policy.

How Does Payment to a Contingent Beneficiary Work?

Payment to a contingent beneficiary occurs when the payment to the policy’s primary beneficiary or beneficiaries isn’t possible. The payout amount and payment structure, which is specified in the plan's contractual terms, is generally identical to what the primary beneficiary would have received.

For example, if you’re married, you may designate your spouse as your primary beneficiary and name your two children as contingent beneficiaries. If you die, your spouse receives 100% of the payment and your children receive nothing. However, if your spouse dies before you do and you haven’t changed the beneficiaries on your plan, your death benefit pays out equally between your two children unless you’ve specified a different percentage payout for each child.

The payout to a contingent beneficiary may also be subject to conditions put into place by the policyholder’s will. For example, the policyholder may specify that a child can only receive a payout if they’ve completed college.

Should I Have a Contingent Beneficiary on My Life Insurance Policy?

Life insurance policies may not require policyholders to name a contingent beneficiary. However, having a secondary beneficiary may be a good idea for several reasons:

  • It can help avoid probate, which is the legal process used to distribute a deceased individual’s assets if there is no will or if the will has been contested. By avoiding probate, you can get the money into the hands of your loved ones more quickly and reduce unnecessary expenses to your estate.
  • It can reduce infighting and legal conflicts among family members about who should be next in line to get the payout.
  • You can add qualifications to contingent beneficiaries to clarify your wishes for the inheritance. By stipulating conditions, you can prevent someone from receiving the funds without meeting the qualifications you’ve set.
  • You can reduce the risk of having your death benefit payout go to someone you don’t want it to or being forfeited to the state.

What Is a Remote Contingent Beneficiary?

On most life insurance policies, you can name multiple contingent beneficiaries. However, to cover all possibilities, you may also want to name a remote contingent beneficiary. Often considered a beneficiary of last resort, a remote contingent beneficiary is a person or organization who receives the payout from your policy if a tragedy results in the death of all other beneficiaries. Policyholders may name charities or distant relatives as remote contingent beneficiaries, eliminating the possibility that their assets will be forfeited to the state if neither primary nor secondary beneficiaries survive them. These last-resort beneficiaries may also be referred to as final beneficiaries.

When Should You Update Contingent Beneficiaries?

If you’ve experienced a major life event, such as a marriage, divorce, birth or death of a loved one, you should review your life insurance policy and update the beneficiaries as necessary. You may also want to review and update your policy in the wake of any relationship upheavals that could affect your wishes regarding inheritance.

How Can You Change the Beneficiaries on Your Life Insurance Policy?

Most life insurance policies let you change primary and contingent beneficiaries at any time by submitting a request in writing or filling out a simple form. When making changes to your designated beneficiaries, make sure to provide accurate information, including Social Security numbers and contact information, as required. Always verify the spelling of first and last names.

If you're naming multiple beneficiaries, you should also include any specific instructions regarding distribution of the benefit. That may include specific percentages of the payout for each beneficiary, and any other conditions that must be met for payout to occur. 

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