Contingent Beneficiaries: Understanding & Why They Matter

Life insurance policies pay death benefits to a beneficiary. The primary beneficiary is the person who receives your death benefit. A contingent beneficiary is a beneficiary that receives the money when your primary beneficiary predeceases you. This beneficiary is not required on a policy, but you should consider naming one.

Significance

The contingent beneficiary should be a person you know and trust to receive the proceeds of the policy. This person may be younger than the primary beneficiary, but this is not a necessity. The contingent beneficiary should not expect to receive the proceeds. He is simply a backup for the primary beneficiary on your policy.

Benefit

Having a contingent beneficiary reduces the possibility of your life insurance policy paying a claim to your estate. Life insurance policy death benefits are not subject to probate when you die as long as you name a beneficiary. When there is no beneficiary, the policy pays the claim to the estate. If this happens, your policy will be unnecessarily subject to the costs of probate court.

Problems

A contingent beneficiary acts as a "second in line" to your death benefit and will not receive the proceeds if the primary beneficiary is alive. If you want to split your death benefit among more than one person, a contingent beneficiary option is not beneficial.

Consideration

Consider naming several primary beneficiaries if you want to distribute your death benefit to two or more people. You name the beneficiaries and specify the percentages you want to give to each beneficiary. At your death, the beneficiaries will receive the proceeds of your policy according to your wishes.