Life Insurance 101: Primary And Secondary Beneficiaries Explained

When you take out a life insurance policy, you must designate a beneficiary, or someone to receive payment in the event of your death. This is an important step in the process of purchasing your policy, as it ensures that your life insurance payout is used as intended. There are two types of beneficiaries: primary and secondary (or contingent). A primary beneficiary is the person or entity that is chosen to receive the death benefit first, receiving the proceeds of your life insurance policy when you die. A secondary beneficiary is the next in line to receive the proceeds of your policy should the primary beneficiary be unable to do so. This could be because the primary beneficiary has died, or because they have chosen to disclaim their inheritance. You can also name a tertiary beneficiary, who would receive the payout if both the primary and secondary beneficiaries are unable to accept it.

Who can be a primary or secondary beneficiary?

A primary beneficiary is the person or entity that is chosen to receive the death benefit first, receiving the proceeds of your life insurance policy when you die. Typically, this is a spouse, child, or other family member. You can name more than one primary beneficiary on your policy, and you can specify how you want the proceeds to be split between them.

A secondary beneficiary (also known as a contingent beneficiary) is the next in line to receive the proceeds of your policy should the primary beneficiary be unable to do so, for example, if the primary beneficiary dies before the policyholder. As with primary beneficiaries, you can name multiple secondary beneficiaries and specify how the proceeds are split.

A tertiary beneficiary is the next in line to receive the proceeds of the policy if both the primary and secondary beneficiaries are unable to do so.

Almost any person can be named as a beneficiary, although your state of residence or insurance provider may restrict who you can name. For example, if you're married, your spouse may have to sign a waiver before you can name someone else as the beneficiary. In some states, beneficiaries who aren't relatives need to have an "insurable interest in your life", meaning they could suffer financially if you were to die.

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

How to choose a primary or secondary beneficiary?

Choosing a primary or secondary beneficiary is a crucial step in purchasing a life insurance policy. A beneficiary is the person or entity that you legally designate to receive the benefits from your financial products. The primary beneficiary is the person or entity that is chosen to receive the death benefit first, receiving the proceeds of your life insurance policy when you die. The secondary beneficiary, also known as the contingent beneficiary, would be the next in line to receive the proceeds of your policy should the primary beneficiary be unable to do so.

When choosing a primary or secondary beneficiary, it is important to consider your individual needs and the specific situations that could happen before and after your death to ensure that your money is distributed correctly. Ask yourself, who will need extra money when you pass away? Are there people who depend on you for financial support? Are there people who will bear certain expenses at your death?

You can choose one or more beneficiaries and specify how you want the proceeds to be split. For example, if you have two beneficiaries, you could designate a 60/40 split or any other combination. It is also important to keep your beneficiary designations up to date as your life changes (marriage, children, divorce, etc.).

In most cases, you may change the beneficiaries named on a life insurance policy or other financial accounts at any time. However, in some cases, your right to change a beneficiary may be limited by a divorce decree or settlement agreement. If you are divorced, you may still be able to change your beneficiary even if the beneficiary is "irrevocable". It is important to check with your insurance company or lawyer before changing a beneficiary or taking out a new life insurance policy.

When to change primary or secondary beneficiaries?

It's important to keep your primary and secondary beneficiary designations up to date as your life changes. Here are some life events that may prompt you to change your beneficiaries:

• Marriage: In some states, you may be required to list your spouse as your primary beneficiary and designate them to receive at least 50% of the benefit.
• Divorce: Depending on the terms of your divorce, you may or may not be able to change or name a new beneficiary without your ex-spouse's consent. Divorce may also revoke a designated spouse's right to receive a benefit.
• Birth of a child: You may want to add your child as a primary or secondary beneficiary.
• Death of a loved one: If one of your beneficiaries passes away, you may want to replace them with another person or entity.
• Moving out or back in with your children: You may want to remove or add them as beneficiaries.
• Remarriage: You may want to change your primary beneficiary or add your new spouse as a secondary beneficiary.
• Any other major life changes: For example, you may get a new job, move to a different state, or experience a significant change in your financial situation.

In most cases, you can change your beneficiaries at any time. However, it's important to review your policies regularly and make necessary changes to ensure your wishes are carried out.

How to change primary or secondary beneficiaries?

Life insurance beneficiaries are the people or entities designated to receive the benefits from your policy or accounts when you die. It is important to keep your beneficiary designations up to date as your life changes, such as in cases of marriage, children, or divorce.

• Contact your insurance provider: Get in touch with your life insurance provider to understand their specific process, which can vary from one company to another.
• Fill out a change form: Your insurance provider will typically require you to complete a "Change of Beneficiary" form. This form legally documents your new choice of beneficiary. Ensure that you fill it out accurately to avoid any future complications.
• Submit documentation: You may need to provide additional documents for verification, such as identification forms or legal papers, along with the change form.
• Follow up: Confirm with your insurance provider that they have accurately updated your beneficiary information to ensure that your intentions are documented and will be executed as planned.

It is important to note that changing beneficiaries is usually easy, but it can be challenging to remember to do so. Contact your employer, financial professional, or financial services company to understand the process and any specific requirements they may have. Additionally, review your policies regularly and make appropriate changes when your life circumstances change.

What happens if you don't name a beneficiary?

While it is not mandatory to name a beneficiary, it is important to understand the implications of not doing so. If you don't designate a beneficiary, it may be unclear who is entitled to the funds, which can delay the benefit payment. In such cases, the default order of payment depends on the type of insurance policy. For individual policies, the death benefit is typically paid to the owner of the policy if they are different from the insured person. If the owner is also deceased, the benefit is paid to their estate. For group insurance policies, the order usually starts with the spouse, followed by children, then parents, and finally, the estate.

If there is no default order specified in the policy, the payout may be subject to probate, a legal process where a court determines how to distribute the assets. This can be a lengthy and complicated process, resulting in delays in accessing the funds. Additionally, in some states, money paid to the estate can be claimed by creditors. Therefore, it is generally advisable to name a beneficiary to ensure that your benefits are distributed according to your wishes.

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