Who to Pick as Your Contingent Beneficiary?

Life insurance policies require you to name your beneficiary. A beneficiary is a person who will receive the death benefit from your life insurance policy.

However, did you know that you need to name your primary and contingent beneficiaries?

Below, you can read more about a contingent beneficiary, how it compares to a primary beneficiary, and, most importantly, who to name.

Table of Contents

    What is a Contingent Beneficiary?

    Contingent beneficiary contract
    Image Source

    A contingent beneficiary is someone you will name as a backup. When you buy life insurance (or open a retirement account), you will have to name your primary beneficiary as well as your contingent beneficiaries.

    Contingent beneficiaries are entitled to the insurance proceeds and the death benefit if:

    1. Primary beneficiaries die
    2. Refuse to receive the proceeds
    3. They cannot be located

    Here are some of the instances where naming beneficiaries is obligatory:

    • Life insurance policy
    • 401(k)s
    • IRAs
    • Annuities
    • 403bs
    • Will

    Primary Beneficiary vs. Contingent Beneficiary

    The primary beneficiary has the first claim on the death benefit and life insurance proceeds. If the primary beneficiary takes the inheritance, contingent beneficiaries are left with nothing.

    A contingent beneficiary only comes into play if the primary beneficiary dies, refuses to claim the inheritance (or death benefit in our case), or can’t be found.

    In this comparison between a primary vs. contingent beneficiary, there are no other differences than the order in which they inherit your assets.

    An Example of Primary and Contingent Beneficiaries

    You can name your spouse as your primary beneficiary and your kids (only if they are of legal age) as your multiple contingent beneficiaries.

    This also answers the question of the number of beneficiaries you can include. Yes, you can have multiple contingent beneficiaries.

    If your spouse dies, your kids will be the ones to get the death benefit. If you have more than one secondary beneficiary, you can specify what each person gets upon your passing, similar to what you can do in your will.

    Characteristics of Contingent Beneficiary

    How does naming contingent beneficiaries work? What should you know about contingent beneficiaries?

    Naming a contingent beneficiary is pretty straightforward. First, you need to name your primary beneficiary—the first person or entity that can inherit your assets. Afterward, you can create a list of your contingent beneficiaries.

    Usually, insurance companies will not limit the number of people you can add.

    People are not the only ones who can inherit assets and receive death benefits. You can also name organizations, estates, charities, or trusts. People with no close family can still look for their designated beneficiary among their close friends and relatives.

    Who to Choose as Your Contingent Beneficiary?

    Now that you know more about primary beneficiaries and whom you can name as your contingent beneficiary, it is time to decide.

    Since you can choose your primary and secondary beneficiaries (nothing is stopping you from picking a random person on the street), and you can have as many contingent beneficiaries as you wish, we want to offer some guidance.

    1. Think about how many contingent beneficiaries you want – First, list the people you want to have as contingent beneficiaries and count them. You can have more than one contingent beneficiary. After you create a list, go through it and find names that you want to get your death benefit or assets.
    2. Consider family members – For a primary beneficiary, you will most likely name your spouse, your brother/sister, or your children (if they are of age). As for a contingent beneficiary, you can further choose anyone from your close family before you go outside the family circle.
    3. Can you name minor children beneficiaries? Minor children do not qualify because they do not have the legal power to accept the asset. Let’s say you are choosing beneficiaries among your two children. You must set a legal guardian instead, who will oversee the money until they can accept it. Naming minors can lead to a probate court, which both life insurance policies and retirement accounts are designed to avoid.
    4. Think of relatives and friends – You can include friends and other relatives you are close to in your life insurance payout (or retirement account proceeds).
    5. Naming charities and organizations – Last but not least, you can allocate some (if not all) of your money to charities or other social organizations and help those in need.

    What Happens if You Have No Contingent Beneficiary?

    You should have at least one contingent beneficiary, and here you’ll see why.

    It is possible to have no contingent beneficiary. However, if your primary beneficiary dies and nobody else is on your list, the life insurance proceeds and death benefit are left for the courts to allocate.

    Most commonly, the death benefit will be directed to your estate, which could increase estate taxes.

    Also, by naming both a contingent beneficiary and your primary beneficiaries, you save your family from the unnecessary probate expenses.

    Can You Change Your Contingent Beneficiary?

    Yes, you can change beneficiaries (a person or entity). All you need to do is contact the insurance company and make the adjustments. This is usually done in divorce or when the relationship changes over the years.

    It is possible to change the primary beneficiary too.

    Get your Life Insurance Policy

    Did you lock your primary beneficiary? How about your secondary beneficiary? 

    Deciding on primary beneficiaries is just a small segment of getting your own whole-life insurance policy.

    To make major life changes in your life and improve your personal finances, you don’t need a financial advisor. 

    At Wealth Nation, we will help you design a policy that you will use as a vehicle for financing your lifestyle.