What is a Contingent Beneficiary? Everything You Need to Know

A contingent beneficiary, also known as a secondary or alternate beneficiary, is an individual or entity designated to receive assets or benefits from a financial account, insurance policy, or estate plan if the primary beneficiary cannot or will not accept them. This could happen if the primary beneficiary dies before the account holder, is unable to be located, or declines the inheritance.

In this guide, you'll learn:

How contingent beneficiaries work
Why it's important to name contingent beneficiaries
How to choose contingent beneficiaries
How to update your beneficiaries

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John Ramsey

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Updated on

July 25, 2024

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Contingent Beneficiary

How do contingent beneficiaries work?

When you open a financial account or purchase an insurance policy, you typically designate one or more primary beneficiaries to receive the assets or benefits upon your death. You can also name one or more contingent beneficiaries as a backup plan. If all the primary beneficiaries are unable to inherit, the contingent beneficiaries will receive the inheritance instead.

Why is it important to name contingent beneficiaries?

Naming contingent beneficiaries is crucial for several reasons:

Ensures your wishes are carried out: It guarantees that your assets will go to the people or organizations you intend, even if your primary beneficiaries cannot inherit.
Avoids delays and complications: Without contingent beneficiaries, your assets may end up in probate court, leading to delays and legal expenses.
Provides peace of mind: Knowing that your loved ones are taken care of can bring peace of mind.

How to choose contingent beneficiaries

When choosing contingent beneficiaries, consider the following factors:

Your relationship with the person or organization: You may want to prioritize close family members or friends, or you may choose to leave assets to a charitable organization.
The financial needs of the beneficiary: Consider the financial circumstances of your potential beneficiaries and choose those who would benefit most from the inheritance.
The age and health of the beneficiary: If you name a minor as a beneficiary, you'll need to designate a guardian to manage the assets until they reach adulthood.

How to update your beneficiaries

It's important to review and update your beneficiaries regularly, especially after major life events such as marriage, divorce, births, or deaths.

If seeking a licensed professional, consider our services. Our insurance advisors and client support team are here to assist you with your insurance needs.

Conclusion

This guide has offered a comprehensive overview of contingent beneficiaries and their importance. For those seeking to deepen their understanding, we recommend exploring our guide on estate planning, which dives into wills, trusts, and other tools for managing your assets and ensuring your legacy.

Contingent Beneficiary FAQ

What is the difference between a primary and contingent beneficiary?

A primary beneficiary is the first person or entity you choose to receive your assets upon your death. A contingent beneficiary, or secondary beneficiary, is a backup plan who receives the assets only if the primary beneficiary is unable to.

Can I have multiple contingent beneficiaries?

Yes, you can typically name multiple contingent beneficiaries for your assets. You can even specify the order in which they would receive the inheritance or divide the assets equally among them.

Can I change my contingent beneficiaries at any time?

Yes, you can generally change your contingent beneficiaries whenever you want. You should review and update your beneficiaries regularly, especially after major life events like marriage, divorce, or the birth of a child.

What happens if I don't name a contingent beneficiary?

If you don't name a contingent beneficiary and your primary beneficiary cannot inherit, your assets may end up in probate court. This can be a lengthy and costly process, and the assets may not be distributed according to your wishes.