When preparing or arranging your life insurance quote, choosing a beneficiary or beneficiaries is an important step in making sure that your assets or properties are divided after your death according to your wishes. Additionally, apart from naming a primary beneficiary, it is also crucial that you designate or choose a contingent life insurance beneficiary.
If you do not know, a contingent life insurance beneficiary is a secondary beneficiary that plays an important role in your estate planning. In other words, they serve or act as a backup in case the primary beneficiary is unable to get the policy benefits. In this comprehensive guide, we will be learning more about the concept and how to choose one.
What is a Contingent Life Insurance Beneficiary?
Who is a contingent life insurance beneficiary? This is an entity or an individual who gets the death benefits of a life insurance quote if the primary beneficiary is unwilling or not able to accept the benefits in the event of the death of the policyholder. For instance, refusal of the inheritance, untimely death of the policyholder, and legal incompetence.
How Do They Work?
The primary role of a contingent life insurance beneficiary is straightforward. It is recognized as a backup option to a policy who will get the insurance proceeds if the primary beneficiary is not eligible or available to access it after the insured or policyholder dies. What’s more, they make sure that the death benefits are divided according to the wishes of the policyholder and prevent disputes or complications over the estate.
Characteristics of a Contingent Life Insurance Beneficiary
Trusts, people, estates, organizations, or charities can be classified as contingent beneficiaries. Besides, a minor does not have the power to own any asset legally. Hence, if the minor is mentioned or listed as a beneficiary in a life insurance policy, a guardian is appointed legally to manage the funds or assets until the minor reaches the legal age requirements.
Even though immediate family members are usually listed as contingent beneficiaries, other relatives and close friends can also be mentioned as well. Meanwhile, if a contingent beneficiary inherits the asset, they will receive it the same way the primary beneficiary should have.
Benefits of Naming a Contingent Life Insurance Beneficiary
Naming or mentioning a contingent life insurance beneficiary gives policyholders the security they need by making sure that the benefits of the policy are evenly distributed or divided accordingly. This should be done even if the primary beneficiaries are not able to receive them. Therefore, legal complications, disagreements over the division of assets, and potential delays are avoided and prevented.
Do I Need a Contingent Life Insurance Beneficiary?
Yes, it is wise and recommended that every policyholder of a life insurance policy name a contingent life insurance beneficiary. The purpose or aim of this action is to ensure the guarantee of life insurance benefits being distributed and divided easily and accordingly. Thus, even if your primary beneficiary cannot claim them, your estate planning has an extra layer of security and protection.
Who Can Be a Contingent Life Insurance Beneficiary?
You can name any of the following as a contingent life insurance beneficiary if you are planning to do this:
- An organization.
- An individual.
- A trust.
- Family and friends.
You might have to provide that an unrelated party of your death benefit would suffer a financial loss if you die, in some states for life insurance. This is also known as insured interest. In other words, taking out a life insurance policy on anyone is impossible.
How to Choose a Contingent Life Insurance Beneficiary
As one of the major aspects of estate planning, choosing this is important. Besides, if you are looking to fit your wishes, you need to have a succession plan to follow. Here is a comprehensive guide you can follow to select the right quote:
- Find out your primary beneficiary reliability.
- Understand the dynamics of your family.
- Consider possible conflicts.
- Assess the financial responsibility of the supposed contingent beneficiary.
- Find out if the contingent beneficiary is eligible.
- Consider your estate planning goals.
- Consider the possible tax implications.
- Ask an estate planner or financial advisor for help.
- Review and update your contingent beneficiary designations to show current changes.
For instance, if you have experienced major life events like the birth of a child. Or marriage, death of a loved one, or divorce, updating regularly is crucial. This is because you need to make sure that you are still receiving adequate coverage.
Primary Beneficiary vs. Contingent Beneficiary
Contingent beneficiary vs. primary: what’s the difference? As a life insurance policyholder, you must understand these terms. Firstly, a primary beneficiary is a person or entity who is first in line to get the death benefits of a life insurance quote upon the passing of the policyholder. On the other hand, contingent beneficiaries are like backup recipients who will only get the death benefits if the primary beneficiary is not able to claim them for specific reasons. For example, being disqualified or ineligible legally.
Frequently Asked Questions
What happens if I don’t name a contingent beneficiary?
If you do not name a contingent beneficiary as a life insurance policyholder. And it might be a serious problem if your primary beneficiary dies before you. In this case, the assets in question might be put through a probate court or considered a part of your estate.
Can I have multiple contingent beneficiaries?
Generally, policyholders can have many or multiple contingent beneficiaries, as long as their share of the estate is up to 100%.
What happens if both the primary and contingent beneficiaries are deceased?
The life coverage benefits will be paid to the estate of the policyholder if both the contingent and primary beneficiary have passed away. Hence, they will be divided according to the state intestacy law or the policyholder’s will.