A contingent beneficiary is a person you choose to inherit some or all of your assets — but only if the primary beneficiary can’t accept them.
Naming beneficiaries is one of the most important steps in buying a life insurance policy, opening a financial account, or completing your estate planning checklist. Beneficiaries inherit the assets from your estate following your death.
If you’ve only chosen a primary beneficiary, your estate may not be as secure as you think. This guide breaks down contingent beneficiaries and how they work.
How do contingent beneficiaries work?
Essentially, a contingent beneficiary is a backup in case your primary beneficiary is unavailable, unable to be found, or deceased. Consider the following example:
You name your spouse as the primary beneficiary for your life insurance payout. You also include your child as the contingent beneficiary. If your spouse outlives you, they’ll receive the death benefit instead of your child. But if your spouse passes away before you do, your life insurance proceeds will pass to your child instead.
Primary beneficiary vs. contingent beneficiary
Primary beneficiaries are first in line to inherit assets from your estate. These assets vary and may include funds in a living trust, a life insurance payout, or retirement plans. Primary beneficiaries are often those closest to you, such as your spouse.
Contingent beneficiaries are second in line to inherit your assets. Also known as secondary beneficiaries, contingent beneficiaries are often children, other family members, or philanthropic organizations. You can name multiple contingent beneficiaries and divide your estate among them.
For instance, you may name your spouse as the primary beneficiary and your two children as dual contingent beneficiaries. If your spouse predeceases you, your children will each receive a portion of your estate following your death.
The contingent beneficiary life insurance payout process
The contingent beneficiary life insurance payout process is relatively straightforward — as long as the policyholder names their beneficiaries before they pass away.
Following your death, your insurance company will reach out to your primary beneficiary to distribute your death benefit. If your insurance provider can't find your primary beneficiary or confirms their death, they’ll contact your contingent beneficiary. Only then will the death benefit pass to the person or organization you named in your estate plan.
Do I need a contingent beneficiary?
While a contingent beneficiary isn’t required to complete an estate plan, it’s a good idea to include at least one. Without one, your assets could enter probate if your primary beneficiary is unable to claim them.
Who should I name as my contingent beneficiary?
Generally, you can name any person or organization as your contingent beneficiary. However, it’s important to remember you’ll need to designate a trustee to manage the estate on behalf of any minor children. Once the contingent beneficiary turns 18, they can assume responsibility for their inheritance.
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.
What happens if I don’t name a contingent beneficiary?
Having no contingent beneficiaries can be a problem if your primary beneficiary passes away before you do. In this case, any belongings in question may be considered part of your estate and put through probate court.
Can I have multiple contingent beneficiaries?
Typically, 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, designate 60% of your estate to your child and 40% to another relative, or divide your assets between several philanthropic organizations.
Move forward confidently with a comprehensive beneficiary plan
End-of-life planning can be emotional and challenging at times. However, building a comprehensive estate plan — and clearly designating primary and contingent beneficiaries — will minimize the stress, confusion, and length of the payout process.