What Is a Contingent Beneficiary?


At some point during the life insurance coverage application process, you'll be inspired to name primary and contingent beneficiaries. Designating beneficiaries could be a challenge if you don't know exactly what you're doing. Don't be concerned, you're not alone. An issue that our customer success team gets asked a lot at this point is: “What exactly is really a contingent beneficiary, and how does it differ from a principal beneficiary?”

When you buy a life insurance policy, you need to list both primary and contingent beneficiaries. To assist using the process, we asked Haven Life's customer success team to share their finest insights with us on beneficiaries.

What is really a beneficiary?

A life insurance coverage beneficiary is really a individual who will receive the payout from the policy if you were to die. The proceeds from the payout may be used to help pay for financial needs – those that come with death, for example funeral arrangements and other end-of-life expenses, together with day-to-day bills such as the mortgage and day care.

You can name two (or more) people as beneficiaries, outlining the percentage from the policy payout each could be given. You can also name a contingent beneficiary, who could get the death benefit if something happened to the main beneficiary. Imagine a contingent beneficiary as your “alternate.” With most life policies, you can improve your beneficiary designation anytime.

For some, designating two primary beneficiaries – say, a spouse or partner along with a parent – may make sense, especially if both could face financial hardship. For other people, one primary life insurance beneficiary, having a contingent beneficiary named, makes the most sense. The latter is what we commonly see at Haven Life.

You can have several primary beneficiary and more than one contingent beneficiary; you just need to designate what percentage of your lifetime insurance proceeds you want to allocate to each of the primary beneficiaries. Haven Life, for example, permits as much as 10 primary beneficiaries and 10 contingent beneficiaries. No matter how many primary beneficiaries you've, the entire percentage allocated must equal 100%. How you divide that 100% can be you, the policyholder.

What is really a contingent beneficiary versus a principal beneficiary?

Essentially, when establishing your lifetime insurance policy, you'll designate a primary beneficiary (typically your spouse or partner), who will receive all death benefits if you, well, die. (There's no method to sugar coat these things sometimes.)

Your contingent beneficiary could be your backup – this is the person who will get those death benefits when your primary beneficiary is unable to receive them.

Why must i designate a contingent beneficiary?

Life is full of unexpected outcomes. Selecting a contingent beneficiary is a prudent way to protect yourself and your loved ones from the quantity of “what-if scenarios,” just like your primary beneficiary not alive at that time claims is created.

Another reason you would want a contingent beneficiary listed would be to avoid the death benefit proceeds becoming payable towards the insured person's estate should your primary beneficiary 't be around, where it might be susceptible to estate taxes along with a delay in disbursing money. (Note: If you've already generate a living trust and/or possess a will established, this might 't be an issue.)

How do I go about selecting a contingent beneficiary?

For many families, the choice is to designate a child or the individual who would be the legal guardian of the children. Without having children, think about a close family member or friend. If you'd like to divide your benefits-for example, for those who have multiple children-you can allocate a particular percentage of said advantages to each person.

Oh, and whenever you're wondering: Yes, you are able to name a charitable organization as a beneficiary.

What is a very common mistake people make when picking a contingent beneficiary?

People often list children who are minors, whereby they also have to name a custodian. As surprising as it may be, the error some people make is naming a custodian who is also the primary beneficiary. This isn't an appropriate arrangement since the custodian could be deceased in order for this situation to come about in the first place.

How often should I review my beneficiaries?

People move. Relationships change. Life – happens. It's wise to examine your beneficiary(s) at least one time a year to make sure your beneficiary designation is up to date. Remember, you can always change, add or remove beneficiaries. And when you don't have a contingent beneficiary on your policy, attempt to add one. You know what they are saying about peace of mind? You can never must a lot of it.