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What Is a Contingent Beneficiary?

A contingent beneficiary is a person, persons, or entity charged with receiving the death benefit from a life insurance policy payout, or any inheritance, should the primary beneficiary not be available, refuses to accept the payout or has died. A contingent beneficiary can be your spouse, children, parents, an organization, like a charity or a company. If you don't have contingent beneficiaries in place when needed, your assets will be disbursed through probate wherein a court can decide who gets what, including your life insurance policy. Keep in mind you can have more than one contingent beneficiary.

Below, you will see how to designate a contingent beneficiary, whether one is needed for life insurance and the difference between a contingent beneficiary and a secondary beneficiary.

How Does a Contingent Beneficiary Assignment Work?

In insurance, a contingent beneficiary gets a life insurance payout when the primary beneficiary does not or cannot claim it. For example, let's say you named your spouse as the primary beneficiary of your life insurance policy once you've died. This means they get the death benefit from your policy upon your death. Then let's say you named your brother to be your contingent beneficiary. If your spouse (God forbid) happens to die, your brother would receive the death benefits once you've passed. Your brother receiving the payout is contingent upon your spouse not being able to accept the benefit. He is the backup plan should your original plan fall through.

A contingent beneficiary can be your spouse, children, parents, an organization, like a charity or a company.

Examples of Contingent Beneficiaries

Contingent beneficiaries can be any person, people, or organization that can be named as a primary beneficiary. They can be:

  • Your spouse

  • Your children

  • Your parents

  • Extended family (uncles, aunts, nieces, nephews, etc.)

  • Friends

  • Charities

  • Non-profit organizations

  • Your estate

Keep in mind that children under the age of 18 can be named as beneficiaries. However, they will not receive the payout until they reach the age of 18.

In insurance, a contingent beneficiary gets a life insurance payout when the primary beneficiary does not or cannot claim it.

Are There Benefits To Naming Contingent Beneficiaries?

There are definite benefits to naming contingent beneficiaries. Having your spouse as your primary beneficiary is a wonderful thing, but while we may not want to think about the worst scenario, it is possible she could not be in a position to receive a death benefit from your life insurance policy. Perhaps she can't be located or she passed before the payout was granted. These situations necessitate contingent beneficiaries to be appointed. For example, if your spouse cannot receive a payout from your life insurance benefits for whatever reason, another close relative can be your backup. Children cannot claim insurance benefits until 18 years of age.

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Can You Have More Than One Contingent Beneficiary?

Absolutely, you can have multiple contingent beneficiaries. The point of a beneficiary in the first place is to make sure your assets, whatever they may be, go where you want them to go once you're gone. For this reason, assigning backups under your primary beneficiary could be a wise decision.

What Happens if You Don't Name Contingent Beneficiaries For Your Assets?

All assets are put into the estate of the deceased party should there be no beneficiaries. The estate refers to any money, property, or other assets that belong to an individual. The estate will then be put in the hands of the court and go through a process called probate. If there is no will or trust or there are no beneficiaries listed in the will or trust, the court follows the rules of probate to distribute all money and property in what would be considered a reasonable manner and with common sense. Each state dictates its own rules of probate. Typically all debt and expenses would be paid off first. The court would then name beneficiaries for the remaining assets, usually starting with the surviving spouse, moving to the children, onto the deceased's parents, and so on.

Children cannot claim life insurance benefits until 18 years of age.

Note: Probate can be avoided in some states if the estate has a low enough value. Your heirs would likely need to submit an Affidavit for Collection of Personal Property in order to receive their benefits.

How To Designate a Contingent Beneficiary

You will need to have a specific person or entity listed as a beneficiary through your will, trust, or life insurance company. A good rule of thumb is to give whomever you are working with as much information about your potential beneficiary as you can. You will usually have to provide the full legal name and their relationship to you if applicable. It is also not uncommon for designations to include the Social Security number, phone number, mailing address, and date of birth. These are all identifiers that help establish who exactly should be receiving your benefits with as much clarity as possible and how to get a hold of them.

If your spouse cannot receive a payout from your life insurance benefits for whatever reason, another close relative can be your backup.

Contingent Beneficiary FAQs

Who should I put as a contingent beneficiary?

This is completely up to you. Typically it is a relative, close friend, or an organization or business you would like to see use the benefit.

What does contingent mean?

In the case of beneficiaries and insurance, contingent refers to a process that occurs only if specific circumstances are met, ie, the primary beneficiary cannot accept any benefits owed to them, so the benefits default to the contingent beneficiary.

Do you have to have a contingent beneficiary in life insurance?

No. Your having a contingent beneficiary for life insurance is completely up to you. Although, it is probably a good idea just in case an unforeseen event takes place causing your primary beneficiary to be unable to receive the payout.

What is the difference between a contingent beneficiary and a secondary beneficiary?

There is no real difference between the two. A secondary beneficiary is a contingent beneficiary. A contingent beneficiary can be a secondary beneficiary. Both are a runner-up individual, group, or organization that takes a benefit if a primary beneficiary does not.

Make Sure Your Family Doesn't Go Without

Contingent beneficiaries ensure your assets are allocated to people you know and love should your primary beneficiary be unable or unwilling to accept any payouts. Keep in mind you can have as many contingent beneficiaries as you'd like. They can be friends, family, organizations, and others. Make sure you give your financial planning institution as much of your contingent beneficiary's information as possible. This makes it easier for them to be identified and contacted. Remember, your assets will be divided amongst your family regardless of there being named beneficiaries. In this case, the courts will decide who gets what. If you don't have life insurance coverage, enter your zip code below and fill out a quick questionnaire. SmartFinancial will send you free quotes for the lowest rates in your area based on your answers.

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