Beneficiaries: Multiple People, One Life Insurance Policy

When taking out a life insurance policy, you must name one or more beneficiaries who will receive the death benefit if the insured passes away while covered by the policy. You can have multiple beneficiaries on a life insurance policy, and doing so is recommended.

There are two types of beneficiaries: primary and contingent. The primary beneficiary is the first in line to receive the death benefit. A contingent beneficiary may receive the death benefit in place of the primary beneficiary if specific, predetermined provisions are satisfied. In most cases, a contingent beneficiary will only receive the death benefit if the primary beneficiary is deceased or unreachable.

You can specify any number of co-beneficiaries and how you want to split the death benefit among them. For example, you might name your spouse as a primary beneficiary and your children as contingent beneficiaries. If your spouse passes away before you do, your children will receive the payout as secondary beneficiaries in the event of your death.

What is a beneficiary?

A beneficiary is a person or entity that you legally designate to receive the benefits from your financial products in the event of your death. This can include life insurance policies, retirement accounts, brokerage accounts, and bank accounts.

Beneficiaries are typically chosen from among family members, such as a spouse, children, or other relatives. However, almost any person can be named as a beneficiary, including charities and trusts. It is also possible to name multiple beneficiaries and specify the percentage of the death benefit that each will receive.

The primary beneficiary is the first in line to receive the death benefit. In the event that the primary beneficiary dies before or simultaneously with the policyholder, a secondary or contingent beneficiary can be named to receive the benefit instead.

It is important to keep beneficiary designations up to date, as failing to do so may result in the wrong person receiving the benefits or delays in payment. Additionally, beneficiary designations cannot be changed or corrected after the policyholder's death.

Primary and contingent beneficiaries: what's the difference?

When setting up life insurance, it is important to understand the roles of primary and contingent beneficiaries. The primary beneficiary is the first in line to receive the policy's death benefit. For example, if you have a $100,000 term life insurance policy and pass away during the term, the primary beneficiary will receive the payout. This is typically a spouse, adult child, or another close family member, but it doesn't have to be. Many people also choose to name charities, organizations, or even trusts as their primary beneficiaries.

On the other hand, a contingent beneficiary is the backup—the person or entity who receives the death benefit if the primary beneficiary is unable to accept it. This could happen if the primary beneficiary passes away, can't be located, or is otherwise ineligible (like an ex-spouse in some cases). For instance, if you named your spouse as the primary beneficiary and your two children as contingent beneficiaries, the children would only receive the payout if your spouse is unable to.

You can also choose to have multiple primary or contingent beneficiaries and specify how the death benefit should be divided. For example, you could name three primary beneficiaries, such as siblings, each receiving a third of the payout. If one of them can't accept the benefit, the other two would split it evenly, while the contingent beneficiary would only receive anything if none of the primary beneficiaries can claim it.

Ultimately, both primary and contingent beneficiaries can be individuals or organizations, and you typically have full control over how the funds are allocated between them.

How to choose a contingent beneficiary

Choosing a contingent beneficiary is an important step in the process of setting up your life insurance policy. Here are some key considerations to help you select a contingent beneficiary:

• Understanding the role of a contingent beneficiary: A contingent beneficiary, also known as a secondary beneficiary, serves as a backup to your primary beneficiary. If your primary beneficiary is unavailable, unable to be found, or has passed away, the contingent beneficiary will receive the payout. This helps ensure that your death benefit goes to someone you care about and avoids the need for probate, a lengthy legal process where a court determines how your assets are distributed.
• Selecting the right person: You can name any person or organisation as your contingent beneficiary. Typically, contingent beneficiaries are often children, other family members, or philanthropic organisations. It's important to consider individuals or entities that are close to you and whom you trust to receive the payout.
• Multiple contingent beneficiaries: You can have multiple contingent beneficiaries and divide your estate among them in any ratio as long as the portions add up to 100% in total. For example, you could split your estate evenly between two children, allocate a certain percentage to a relative, or distribute your assets among several charities.
• Designating minors as beneficiaries: If you want to name minor children as contingent beneficiaries, keep in mind that a legal guardian will be appointed to oversee the funds until they reach the legal age of consent. Consult with a lawyer or financial advisor to determine the best approach for your specific situation.
• Updating and reviewing beneficiaries: It's crucial to regularly review and update your beneficiary designations, especially after major life events such as marriage, divorce, or the death of a loved one. This ensures that your wishes are up to date and helps facilitate a smooth payout process after your passing.
• Communicating with beneficiaries: Remember to notify your beneficiaries when you name them on your policy, and ensure they know which insurance company you're using. This will enable them to claim the payout efficiently when the time comes.

What happens if your primary beneficiary is deceased and you have no contingent beneficiaries?

It is important to keep your beneficiary designations up to date as your life changes (marriage, children, divorce, etc.). While it is not mandatory to name a beneficiary, it is usually the reason people buy life insurance in the first place.

If your primary beneficiary passes away, the death benefit would go to any contingent beneficiaries you named when you applied for your policy. In the event you didn’t designate any contingent beneficiaries, the death payout would likely go directly into your estate.

If one of multiple beneficiaries dies, the remaining beneficiaries would be entitled to the death benefit. Typically, they’d each receive the same amount of money, but you can request a different type of distribution if you’d like.

If your contingent beneficiary passes away, and your primary beneficiary is also deceased, any remaining beneficiaries will receive the payout. If there are no remaining beneficiaries, there’s a good chance the death benefit would be paid to your estate. Keep in mind that this will involve the probate process, which can take some time.

It is possible to designate multiple primary co-beneficiaries, as well as multiple contingent co-beneficiaries. For policies with multiple primary beneficiaries, the contingent beneficiary or beneficiaries will likely only receive the death benefit if none of the primary beneficiaries are reachable. If this happens to be the case, each contingent beneficiary will receive their designated portion of the death benefit.

If there is no default order specified in your policy, the payout may be paid to your estate, or may also be held in probate. In either case, the probate process can be lengthy and complicated, and it may take years before your loved ones can access your assets.

Can I name a child as my contingent beneficiary?

Yes, you can name a child as your contingent beneficiary. A contingent beneficiary is a "backup" beneficiary who will receive the death benefit in the event that the primary beneficiary is deceased or otherwise unable to accept the benefit.

While it is common to name a spouse as the primary beneficiary and children as contingent beneficiaries, it is important to consider the age of your children when making this decision. If you have young children, you may want to set up a trust to protect them and ensure the funds are used wisely. A trust can also help to avoid the need for a conservatorship, which can be expensive and burdensome.

Additionally, if you are concerned about your child's financial responsibility, you can establish provisions in the trust to prevent them from squandering their inheritance. It is also worth noting that children under the age of 18 cannot directly receive the death benefit. Instead, it may be sent to the legal guardian of the child's estate.

Frequently asked questions