What Is a Contingent Beneficiary?

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Life insurance is a powerful way to provide for those you love, even after you’re gone. When purchasing coverage, you have an important decision: who you’ll name as your beneficiary. As long as your policy is in force, the beneficiary is the person or entity that inherits the death benefit after you pass.

However, life is unpredictable, and there may be times or circumstances when your primary beneficiary is no longer available. That’s when having a contingent beneficiary may be critical. So, what is a contingent beneficiary? It’s the person or entity that inherits your death benefit if the primary beneficiary can’t.

Here’s why you may want to name a contingent beneficiary and what you need to know about their role.

What Is a Contingent Beneficiary?

A life insurance death benefit is money your beneficiary receives after you pass (as long as your policy is current). Often, a beneficiary is a person, like a spouse, child, or close friend, but it can also be an entity like a business or charity. When you pass, your death benefit goes to the primary beneficiary—the first in line to get the death benefit.

However, if your primary beneficiary isn’t available, the contingent beneficiary receives the funds. They essentially act as a backup plan for your life insurance payout.

This could happen for a few reasons:

  • The primary beneficiary passed away before you.
  • The life insurance company can’t find the primary beneficiary.
  • The primary beneficiary refuses the life insurance benefit.

In these situations, the life insurance company will deliver your death benefit to the contingent beneficiary as next in line.

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Does Everyone Need a Contingent Beneficiary?

It’s not mandatory to name a contingent beneficiary on your life insurance paperwork. However, it provides an additional safeguard to ensure the death benefit goes to a person or entity of your choosing.

Here’s a hypothetical example: You may list your spouse as the primary beneficiary and your four kids as the contingent beneficiaries, each getting 25 percent. The goal is to provide them with some financial security after your death. However, your spouse passes, and then you die a year later. Since your spouse can’t receive the funds, the death benefit will go to your kids as listed in your life insurance contract.

How Do Contingent Beneficiaries Fit into Estate Planning?

If your primary beneficiary has passed, can’t be found, or refuses the death benefit and you don’t have contingent beneficiaries, the funds become part of your estate. From there, the money goes through the probate process. A judge may review your assets, determine your heir, and provide them with the funds. You won’t have a say in who receives the money.

Setting up a contingent beneficiary beforehand saves your loved ones the hassle of going through probate during a stressful time.

Contingent beneficiaries can also help prevent disagreements among your family members or heirs. If the primary beneficiary can’t receive the funds, having a clear backup can help avoid confusion and potential legal battles.

How Do You Name a Contingent Beneficiary?

As with primary beneficiaries, you can choose your contingent beneficiaries.

Choices include but aren’t limited to:

  • Family members such as children, grandchildren, cousins, nieces, and nephews
  • Close friends and loved ones
  • Charities and organizations important to you
  • Business partners or your company
  • Trusts for minor children or disabled beneficiaries

You can name multiple contingent beneficiaries. If you do, you’ll need to provide their full names and contact information, Social Security numbers, and the percentage of the death benefit allocated to them. The total percentages must add up to 100 percent.

Planning for Your Family’s Future

Talking about life insurance and death can be difficult, so leading with empathy and transparency is key. Being open and honest about your intentions and the reasoning behind your choices can help. A financial advisor or estate planning professional can guide you through the process, especially if you have more complex family dynamics.

Naming a contingent beneficiary acts as insurance for your insurance. It’s a simple step that provides extra peace of mind when reviewing your life insurance options.

Curious to learn more about the life insurance options available to you? Reach out to a Colonial Penn representative to explore the benefits and get a quote today.

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