Who Gets Your Life Insurance Payout: Contingent Beneficiaries Explained

A contingent beneficiary is a backup recipient of an inheritance who will receive the benefit only if the primary beneficiary is deceased, cannot be located, refuses the inheritance, or is otherwise unable to accept the benefit. The primary beneficiary is the first in line to inherit assets from the original owner's estate. However, if the primary beneficiary is unavailable for any reason, the contingent beneficiary will receive the assets instead. Multiple contingent beneficiaries can be listed, and each will receive a percentage of the total amount. Contingent beneficiaries can be people, organizations, estates, charities, or trusts.

Who can be a contingent beneficiary?

A contingent beneficiary, or secondary beneficiary, serves as a backup to the primary beneficiaries named on your life insurance policy. When you pass away, if all of your primary beneficiaries have also passed away, your contingent beneficiaries will receive the payout.

When purchasing life insurance, you will be asked to designate at least one primary beneficiary. You should also name at least one contingent beneficiary. However, this is not a requirement.

You can name any person or organisation as your contingent beneficiary. However, if you name minor children as beneficiaries, even contingent ones, you will need to select a custodian to manage the payout funds until the children come of age.

You can have as many contingent beneficiaries as you want, as long as their portions of the estate add up to 100%. You could split your estate evenly between two children, give 60% of your estate to your child and 40% to another relative, or divide your assets between several philanthropic organisations.

You can also establish criteria around your contingent beneficiary's inheritance. For example, you could name your child as the secondary beneficiary of your life insurance payout, but only after they finish college.

How to choose a contingent beneficiary?

A contingent beneficiary is a backup beneficiary who will receive the benefit from your policy if the primary beneficiary cannot. When you apply for a life insurance policy, you will be asked to name your primary beneficiary. You can then name your contingent beneficiary at the same time.

You can name any person, organisation, or business as your contingent beneficiary. You can also name multiple contingent beneficiaries and divide your estate among them however you wish, as long as the portions add up to 100%. For example, you could split your estate evenly between two children, or give 60% to your child and 40% to another relative.

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

• Choose someone you trust and who is likely to outlive you. This could be a spouse, adult child, sibling, or another family member.
• If you want to leave money to a minor child, you will need to designate a trustee to manage the estate on their behalf until they turn 18.
• You can also name an organisation as your contingent beneficiary, such as a school or place of worship.
• Review and update your beneficiaries after major life changes such as marriage, divorce, birth, or death.
• You can set criteria around your contingent beneficiary's inheritance. For example, you could state that your child will only receive their inheritance after they finish college.
• If you are close to your spouse's family, you could consider naming their siblings or parents as contingent beneficiaries.
• Ultimately, there is no right or wrong way to select a contingent beneficiary. Choose whoever you believe is worthy of the funds and who will make good use of them.

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 probate process involves the courts stepping in and using the succession line that states follow according to state law to determine who gets what. This means that you will no longer have control over who ends up with your assets.

Additionally, not having a contingent beneficiary increases the risk of death benefit proceeds going to your estate, which can increase the chance of estate taxes being applied. It is also likely that the distribution of assets will be delayed.

Therefore, it is always a good idea to name at least one contingent beneficiary, even though it is not a requirement. This will ensure that your assets go to the people or entities that you intend and help your family avoid unnecessary time and expenses related to probate.

When does a contingent beneficiary receive the benefit?

A contingent beneficiary will receive the benefit when the primary beneficiary is unable to accept the inheritance. This could be because the primary beneficiary has died, cannot be located, or refuses the inheritance.

The contingent beneficiary inherits only if the primary beneficiary is deceased, unable to be located, or refuses the inheritance when the proceeds are paid out. The primary beneficiary will always be given the opportunity to accept the inheritance first. If they do, the contingent beneficiary will not receive anything.

The contingent beneficiary life insurance payout process is relatively straightforward. After the death of the policyholder, the insurance company will reach out to the primary beneficiary. If the insurance provider cannot find the primary beneficiary or confirms their death, they will then contact the contingent beneficiary.

It is important to name a contingent beneficiary when purchasing life insurance. If there is no contingent beneficiary named and the primary beneficiary is unable to claim the benefit, the assets will be considered part of the estate and will have to go through the probate process. This can be costly and time-consuming, and the benefit may be subject to estate taxes.

How many contingent beneficiaries can you name?

When you take out a life insurance policy, you will name a primary beneficiary—the person who will receive the death benefit payout when you die. You can list more than one primary beneficiary and specify how much of the payout each one will receive, but you must name at least one person.

You should also name a contingent beneficiary (or beneficiaries). This is the person who collects your insurance payout if none of your primary beneficiaries can accept the money. A contingent beneficiary is a backup in case your primary beneficiary is unavailable, unable to be found, or deceased.

You can name as many contingent beneficiaries as you like, as long as their portions of the estate add up to 100%. You could split your estate evenly between two children, give 60% of your estate to your child and 40% to another relative, or divide your assets between several philanthropic organisations.

You can also name people in other beneficiary tiers (tertiary, quaternary, and so on), but primary and contingent beneficiaries are usually enough for most people.

Frequently asked questions