Who Can Sue Whom? Understanding Life Insurance Beneficiaries

A contingent beneficiary is a backup beneficiary who will receive the benefit from a life insurance policy if the primary beneficiary is unable to. This may be because the primary beneficiary has died, cannot be found, or refused the payout. While it is not required to name a contingent beneficiary, it is recommended to ensure that the death benefit goes to a person or entity chosen by the policyholder. Anyone with a valid legal claim can contest a life insurance policy, and a contingent beneficiary may have the right to sue a trustee who has breached their duties.

Who can be a contingent beneficiary?

A contingent beneficiary is a backup to the primary beneficiary named on a life insurance policy. They are the designated recipient of an inheritance only if the primary beneficiary has died, cannot be located, or refuses the inheritance.

A contingent beneficiary can be any person, organisation, business, estate, charity, or trust. They are often immediate family members, but close friends and other relatives are also named.

When purchasing life insurance, you will be asked to designate at least one primary beneficiary, and it is recommended that you also name at least one contingent beneficiary. You can name multiple contingent beneficiaries and decide what percentage of the total amount each will receive.

If you do not name a contingent beneficiary and your primary beneficiary cannot receive the payout, your estate may have to go through probate. This process can be costly and time-consuming, so it is a good idea to name at least one contingent beneficiary.

What happens if there is no contingent beneficiary?

If there is no contingent beneficiary, the assets in question will be considered part of the estate and will have to go through the probate process. This can be costly and time-consuming, and it may delay the distribution of the inheritance. The court will step in, and the assets will be distributed according to state law and the succession line that states follow.

Probate is the legal process of distributing a deceased person's assets when there is no will. It is important to name a primary and a contingent beneficiary to ensure your estate and assets go to those you intend. If you don't name a contingent beneficiary, you will have no control over who ends up with your assets.

Additionally, not naming a contingent beneficiary increases the risk of death benefit proceeds going to your estate, which can increase the chance of estate taxes. Distribution of the assets will also likely be delayed.

Can a contingent beneficiary sue a trustee?

A trustee has a duty to fulfill its obligations to all the beneficiaries, including contingent beneficiaries. When a trustee breaches their duties, a contingent beneficiary may have the right to sue the trustee. For example, in Giagnorio v. Trust, the court held that the contingent beneficiary had standing to sue a trustee who breached their fiduciary duties because the trustee has the same obligations to a contingent beneficiary as to a beneficiary with vested interest.

A contingent beneficiary is a backup beneficiary who will benefit from your policy if the primary beneficiary cannot receive the payout. When purchasing life insurance, you will be asked to designate at least one primary beneficiary, and it is recommended that you also name at least one contingent beneficiary. The primary beneficiary will collect the death benefit if you pass away while your plan is still active. A contingent beneficiary will be entitled to the benefit if the primary beneficiary has died, cannot be found, or refused the payout.

In the context of insurance contracts, a contingent beneficiary is one who benefits when the prior beneficiary of the policy is unable to receive the benefit. For example, if the primary beneficiary has died, the contingent beneficiary will receive the payout instead. It is important to note that multiple contingent beneficiaries can be listed, with each due a percentage of the total amount.

While it is not required to name a contingent beneficiary when purchasing life insurance, it is recommended to ensure that someone you care about receives your death benefit in case your primary beneficiary is unable to. If there is no contingent beneficiary, the death benefit will be paid to the estate instead, and it may be subject to estate taxes and probate court.

When can a contingent beneficiary receive the payout?

A contingent beneficiary will receive a payout when the primary beneficiary is unable to receive it. This can occur for several reasons:

• The primary beneficiary has died.
• The primary beneficiary cannot be located.
• The primary beneficiary refuses the inheritance.

In the case of life insurance, the primary beneficiary is first in line to receive the death benefit payout from the policy. If all primary beneficiaries have passed away when the policyholder dies, the contingent beneficiary will receive the payout instead.

It is important to note that the contingent beneficiary will not receive anything if the primary beneficiary accepts the inheritance. Additionally, all primary beneficiaries must be deceased or disclaim their inheritances before the assets pass to the contingent beneficiary.

When choosing beneficiaries, it is common to name close relatives or favourite organisations as primary beneficiaries. Contingent beneficiaries might be less closely related but should still be individuals or organisations that the policyholder trusts.

Can a contingent beneficiary be changed?

Yes, you can change your contingent beneficiary. As long as the beneficiaries in your policy are revocable, you have the freedom to change your contingent beneficiary. For example, if you get divorced, you can replace your ex-spouse with someone else as your beneficiary.

It's important to keep your beneficiary designations up to date as your life changes (marriage, children, divorce, etc.). You can name multiple contingent beneficiaries and set a percentage or amount of your payout for each to receive. However, contingent beneficiaries act as a backup plan for your death benefit; they will only receive a payout if all primary beneficiaries are confirmed as deceased.

You can change your contingent beneficiary by contacting your employer, financial professional, or financial services company.

Frequently asked questions