What Is a Contingent Beneficiary?

by Bestow Team | July 30, 2019

What Is a Contingent Beneficiary?

And Why Do You Need One

By Bestow Team

June 21, 2019

What Is a Contingent Beneficiary?


Life insurance can be overwhelming. What’s the difference between this plan and that? What’s a contingent beneficiary? The number of questions and strange terms thrown at you is simply overwhelming. Breathe — we can figure this out together.

First things first, if you aren’t familiar with insurance basics, do some quick reading. Next, there are two important questions you’ll encounter early on during your insurance journey:

  • Who is your primary beneficiary?
  • Who is your contingent beneficiary?

Sports talk makes everything easier to understand, right? Well, think of your primary beneficiary as your starter and the contingent beneficiary as your second-string receiver. In the event that your primary beneficiary can’t receive the payout, the contingent beneficiary will.

an open book encased in a circle. Illustration

A contingent beneficiary receives your life insurance payout in the event the primary beneficiary can’t.

Do I Need a Contingent Beneficiary?


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Much like insurance itself, contingent beneficiaries serve as a safety net for those “what if” moments. If the world were a fairytale, you wouldn’t need a contingent beneficiary. Your primary would receive everything, and all would be swell.

But alas, life is unpredictable, hence why insurance is such a great idea. This same predictable nature is exactly why a contingent beneficiary is recommended.

For example, let’s say your beneficiary passes away before you, or you’re both in an accident. If you don’t have a contingent beneficiary named, your insurance payout will go to your estate, and could even be used to pay off debts.

In either of those events, a contingent beneficiary would receive the insurance payout in place of your estate or debt companies. Ideally, you should name a few contingents, just in case misfortune befalls more than you, your primary, and your first few contingents. (Your surviving relatives also might want to look into the possibility of your family being cursed if this happens).

How to Choose a Contingent Beneficiary


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Contingent beneficiaries are clearly important, but how do you go about picking them? Well, this part is pretty much up to you. Still, there are some things you can consider when deciding who to pick.

  • Consider your children.

    If you have children, they’re a natural choice. If you have multiple children you’d like to pick, you can even divvy up the percentage they each get. This lets you rest easy knowing your loved ones are covered no matter what.

  • Pick a close friend or family member.

    Another common pick for contingent beneficiaries: close friends and family members. Think about your most trusted friends or dearest family members, and consider picking a few of them as contingents.

  • Elect a charitable organization.

    Is there a charity you hold near and dear? You can choose to leave your life insurance payout to them if you would like. This is a situation where you definitely want to speak with a tax or insurance specialist first, as there could potentially be additional steps to take.

  • The decision on who will be a contingent beneficiary is entirely yours, but the above suggestions should at least get you started on the right path. Now, how do you evaluate your candidates?

Reviewing Your Contingent Beneficiaries

Once you’ve narrowed down your choices a bit, you can begin evaluating them. There are a number of things to consider when examining each of your candidates that should help you make even more educated choices.

  • Are your beneficiaries minors?

    If this is the case, you need to name a custodian. This is someone that will handle the finances of your insurance payout in the event of your death. If possible, avoid picking minors as your contingents, as it can complicate things. (If your kids are minors, then obviously you should include them and look into a custodian.)

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Tip: Regularly check the status of your beneficiaries after you’ve chosen them, making sure all info on them is accurate and up to date!

  • Does your contingent receive SSI or Medicaid?

    If your primary or contingent beneficiary is currently receiving any social security or Medicaid benefits, certain laws could prohibit them from receiving these benefits in the event your life insurance money increases their income beyond a certain point.

    Check your state’s laws and consult with an expert before electing anyone on benefits, as the last thing you’d want to do is deprive them of benefits they need.

  • Are they still ticking?

    This might sound like a joke, but make sure your contingent beneficiary choices are all still living and in good health. It’s easy to lose touch with people, and you don’t want to pick anyone that’s ill or no longer living.

The Importance of Contingent Beneficiaries


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The importance of contingent beneficiaries can’t be emphasized enough. You have no control over many of the things life throws at you. One thing you do have control over: protecting your family.

Life insurance can be a wonderful safety net and a great way to continue caring for those you love when you’re gone. Making sure that care gets into the right hands is key. Few things make that happen as well as contingent beneficiaries do. You’ve worked hard to care for your family. Make sure that care continues even after you’re gone.

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You leave home to seek your fortune and, when you get it, you go home and share it with your family.

—Anita Baker