Life Insurance: Can A Primary Also Be A Secondary?

When you fill out the necessary forms for your life insurance policy, you will be asked to distinguish between a primary and a secondary beneficiary. The primary beneficiary is the individual who is first in line to receive the account assets after you pass away. The secondary beneficiary, also known as a contingent beneficiary, is the person or entity that may inherit the remaining account assets so long as there are no other surviving primary beneficiaries when you pass away. You can designate multiple primary and secondary beneficiaries depending on your individual needs.

Primary beneficiary rights

When it comes to life insurance, a primary beneficiary is the first person or entity in line to receive the death benefit from the policy. The primary beneficiary is chosen by the policyholder, and this is usually a close relative, such as a spouse, parent, or sibling. However, it is also possible to name a friend or a charitable trust as the primary beneficiary.

The primary beneficiary has certain rights, which include:

• Being the first recipient of the death benefit: The primary beneficiary is the first person or entity designated to receive the payout from the life insurance policy. They are the main beneficiary and have priority over any other beneficiaries that may be listed.
• Receiving the entire death benefit: If the policyholder chooses to do so, the primary beneficiary can receive the full amount of the death benefit. This means that 100% of the proceeds will go to the primary beneficiary.
• Having the right to consent: If the policyholder wishes to change the primary beneficiary, they must obtain the consent of the current primary beneficiary, especially if the beneficiary is irrevocable. This gives the primary beneficiary a level of protection, as their consent is required for any changes to their status.
• Having the right to receive benefits upon the policyholder's death: In the event of the policyholder's death, the primary beneficiary is entitled to receive the benefits outlined in the policy. This may include a lump-sum payment, annuity payments, or other benefits specified in the policy.

It is important to note that the primary beneficiary's rights can vary depending on the specific terms of the life insurance policy and the laws of the state where the policy was purchased. It is always a good idea to review the policy documents and consult with a legal professional to fully understand the rights and obligations of all parties involved.

Secondary beneficiary rights

A secondary beneficiary, also known as a contingent beneficiary, is a person or entity that may inherit assets from a grantor after the rights of the primary beneficiary are considered and satisfied.

A secondary beneficiary inherits assets only when certain conditions are met. These conditions include:

• The death of the primary beneficiary
• The primary beneficiary disclaims their inheritance
• The primary beneficiary is directed via a will or estate to provide for the secondary beneficiary
• The primary beneficiary cannot be located at the time of the grantor's death

In some instances, a secondary beneficiary may inherit the assets if the primary beneficiary is incapacitated.

A secondary beneficiary can be named in a will, trust, retirement or investment account, and other accounts in which assets are inheritable.

Designating beneficiaries can be a sophisticated process. It is recommended to have the assistance of an attorney to ensure that the will is valid and its instructions are carried out as desired.

Tertiary beneficiary rights

A tertiary beneficiary is the third class of beneficiary and exists almost entirely for the policyholder's peace of mind. They are the back-up beneficiary if both the primary and secondary beneficiaries are unable to receive the death benefit. This could be because they are deceased, they disclaim their inheritance, or they cannot be located.

A tertiary beneficiary is also known as a third beneficiary or a 'backup' or 'contingent' beneficiary.

Tertiary beneficiaries are important because they ensure that, should anything happen to the primary and secondary beneficiaries, the benefits will still be paid out to a loved one.

When choosing a tertiary beneficiary, it is important to consider the following:

• Relationship: Choose someone you are close to, such as a spouse, parent, or other relative, or someone for whom you are responsible, such as a child or grandchild.
• Financial needs: Consider whether your spouse or children will achieve independent financial freedom in your lifetime. In that case, you may want to choose other relatives or close friends who may need financial support after your death.
• Age: Many policyholders choose young beneficiaries who can use the death benefits for significant life expenses. Also, consider the tax implications for the beneficiary, especially if they are older.

You can name basically anyone as your beneficiary, but always name them outright—writing 'my best friend', for example, won't be sufficient.

Naming multiple beneficiaries

You can also name multiple primary and secondary beneficiaries. The primary beneficiary is the individual who is first in line to receive any account assets after you pass away. The secondary beneficiary is second in line to receive the payout if your primary beneficiary is unable to receive it.

For example, if you name your spouse as the primary beneficiary and your children as secondary beneficiaries, the children will only be entitled to inherit assets if the spouse passes away before you do, or if the spouse does not claim entitlement to those assets.

You can also name a charity, trust, or another entity as your primary or secondary beneficiary.

It is important to keep your beneficiary designations up to date as your life changes (marriage, children, divorce, etc.).

Beneficiary designation

When filling out important forms for your life insurance policy, you will be asked to distinguish between a primary and a secondary or contingent beneficiary.

Primary Beneficiary

The primary beneficiary is the individual who is first in line to receive the death benefit from your life insurance policy. Typically, this is your spouse, but it can also be your children, other family members, or a trust.

Secondary Beneficiary

The secondary beneficiary, also known as a contingent beneficiary, is the person or entity that inherits the remaining account assets if there are no other surviving primary beneficiaries when you pass away. For example, if you name your spouse as the primary beneficiary and your children as secondary beneficiaries, the children will only be entitled to inherit assets if the spouse passes away before you or does not claim their entitlement.

It is important to keep your beneficiary designations up to date, especially following major life changes such as marriage, divorce, or the birth of a child. You can usually change your beneficiaries at any time by contacting your employer, financial professional, or financial services company.

When designating beneficiaries, be sure to provide specific information such as the person's full legal name, their relationship to you, and their contact details. This will help the insurance company verify and locate your beneficiaries if needed.

You can also choose to not name a beneficiary, in which case, the funds will likely be held in probate and a court will determine how to distribute your assets.

Frequently asked questions