What is a contingent beneficiary?

A contingent beneficiary is an individual or entity who is named as an alternate to receive a trust or life insurance distribution in the event the primary beneficiary is deceased, incapacitated or unwilling to accept the distribution. It is crucial to name a contingent beneficiary in your life insurance policy or other estate planning documents in order to make sure the assets you intended to go to loved ones aren’t used to pay your creditors or estate expenses.

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Lauren Blair has been practicing law for more than 25 years. Lauren has been a licensed member in good standing of the Illinois bar since 1994, the year she graduated from Illinois Institute of Technology’s Chicago-Kent College of Law. Prior to law school, Lauren obtained a Bachelor of Arts in government from Cornell University. For the first 20 years of her practice, she worked in mid-size l...

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UPDATED: Jul 16, 2021

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Life insurance is a simple and effective estate planning tool that allows you to designate who will receive the life insurance proceeds after you die. But what if the person you designated to receive your assets dies before you do, or becomes incapacitated? If you didn’t name a contingent beneficiary, the assets you intended to go to family and loved ones instead might be used to pay your creditors or estate expenses. That’s why the best estate plans have contingent beneficiaries in case the primary wishes of the grantor can’t be met.

Does your life insurance policy designate one or more contingent beneficiaries in the event the primary beneficiary is unable for whatever reason to receive the death benefit? If the answer is no or you’re not sure, or if you’re looking to obtain the best life insurance to meet your estate planning needs, put your ZIP code into our search tool and you’ll be connected to a knowledgeable insurance provider in your area who will help you develop a plan about where your assets will go after you die.

What is a beneficiary in estate planning?

Generally speaking, a beneficiary is someone who receives some type of benefit. Beneficiaries arise in the context of estate planning, and commonly with trusts and life insurance policies. Trusts and life insurance policies are set up to ensure that named individuals or entities will receive a specific benefit, typically money or some other asset, after the death of the person bestowing the benefit. 

What is a trust?

A trust is an estate planning tool that allows a person, called the grantor, to distribute property after death to named beneficiaries. Trusts are managed by a trustee who has a fiduciary duty to properly administer trust assets according to the trust agreement.

What is a life insurance policy?

A life insurance policy also can be used as an estate planning tool. Life insurance is a contract between an insurance provider and a policyholder whereby the policyholder agrees to pay premiums during the insured’s lifetime in exchange for the provider’s promise to pay a guaranteed amount of money to named beneficiaries after the insured dies.

Both trusts and life insurance policies are governed by written legal documents that set forth the rules on how, what, when and where assets are to be distributed to a named beneficiary.

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What is a primary beneficiary?

A primary beneficiary is the first in line to receive a distribution under a will, trust or life insurance policy, or sometimes according to a state’s intestacy law. The estate planning documents typically identify and distinguish primary beneficiaries from secondary and contingent beneficiaries.  

In order for the primary beneficiary to receive the distribution, most trust agreements and insurance policies require that the primary beneficiary must be alive at the time the grantor (for a trust) or the insured (for life insurance) dies. Additionally, in some cases, the primary beneficiary must be willing and able (i.e., not be mentally incapacitated) to accept the benefit.

What is a contingent or remainder beneficiary?

A contingent beneficiary, sometimes referred to as a remainder beneficiary or secondary beneficiary, is an individual or entity who, according to the legal document or state inheritance laws, is scheduled to receive a trust or life insurance distribution in the event the primary beneficiary is deceased, incapacitated or unwilling to accept the distribution.

Let’s say a 65-year old person purchases a life insurance policy on her own life and names her only adult child as the primary beneficiary and her only grandchild as the contingent beneficiary. The policy states that the primary beneficiary must be alive at the time the insured dies in order to receive the death benefit. The policyholder/insured and her adult child both die instantly in a plane crash. Because the adult child (i.e., the primary beneficiary) did not survive the policyholder/insured, the grandchild would receive the benefit as the only surviving contingent beneficiary.

Can there be multiple primary and contingent beneficiaries?

Yes, you can designate multiple primary and contingent beneficiaries, but in that case the trust grantor or life insurance policyholder must designate the percentage of assets or life insurance proceeds that is allocated to each beneficiary.

For example, if a husband buys life insurance on his own life and names his wife and two children as primary beneficiaries, he can assign any allocation he wants, like designating that his wife receive 50% of the death benefit and his two children each receive 25%. The husband can also designate that his only niece and nephew are contingent beneficiaries who will each receive 50% of the life insurance proceeds in the event his wife and children predecease him.

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Can a primary beneficiary also be a contingent beneficiary?

Although you can have more than one primary or contingent beneficiary, the primary beneficiary cannot also be a contingent beneficiary. That’s because by definition, a contingent beneficiary only receives the benefits in the event none of the primary beneficiaries survive or are willing and able to receive the distribution.

Can a child be a contingent beneficiary?

Yes, a child can be a primary or contingent beneficiary but there is an important caveat. If a child beneficiary is still a minor at the death of the grantor or insured, then the child won’t receive the assets or payout directly until the “age of majority.”

What happens in the interim depends on what is stated in the trust agreement or life insurance policy. In the case of a trust, the trustee would ensure that benefits are distributed to minor beneficiaries according to the grantor’s instructions. The grantor decides the age of majority or age at which the beneficiary is able to receive the trust assets directly. In the case of a life insurance payout to a minor, the proceeds will likely go through probate where decisions about how the assets are handled and distributed are made by the probate court and administered by a court-appointed guardian until the child reaches the age of majority.

What is the difference between a revocable and irrevocable beneficiary?

In addition to giving beneficiaries primary or contingent status, you can make the beneficiary designation revocable or irrevocable. If someone is designated as a revocable beneficiary, that means the policyholder can change the name of the beneficiary at any time. On the other hand, if you name someone as an irrevocable beneficiary, the policyholder cannot change the beneficiary without the beneficiary’s consent. Irrevocable beneficiaries are useful if a court orders life insurance to cover child support or if the insured has a terminal illness and is concerned someone will make changes after they become incapacitiated.

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Get Help

It’s important to have both primary and contingency plans for where your assets go after your death. Naming contingent beneficiaries, who will receive the designated assets in the event the primary beneficiaries are unable to, is the best way to ensure that your wishes are fulfilled, and that money you intended to give to family and loved ones is not used to pay your creditors or estate expenses. Reach out to our knowledgeable insurance agents by putting your ZIP code into our search tool. They will help you secure the best life insurance for your estate planning needs and create a reliable plan for how your life insurance proceeds are distributed.

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