When setting up your insurance, will or trust you are likely to come across the term Contingent Beneficiary. In this post, we’ve put together everything you need to know before choosing a contingent beneficiary.
Contingent Beneficiary
Contingent Beneficiary is common terminology used in the insurance sector, related to a will or trust of a person after demise. In this article, we will discuss elaborately both contingent and beneficiary, the different types of beneficiaries with their distinguishing characteristics and some frequently asked questions on the contingent beneficiary.
What is a beneficiary?
Firstly, let us try to understand what is a beneficiary. A beneficiary can be a person or a legal entity in an insurance deal or agreement; entitled to receive the death benefits in the form of money or any other medium. The person or legal entity received the amount as a contingent beneficiary after the demise of the primary beneficiary.
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What is contingent? with example
In the literal sense, if you want to understand what is contingent. Then it implies being dependent on certain conditions being fulfilled. For example when we speak of the contingent beneficiary, then it implies the payment of insurance to the beneficiary only on the death of the primary beneficiary; provided the name of the beneficiary is mentioned in the will or trust. The payment is also made to the beneficiary if the insured person is missing or cannot be traced.
What is a contingent beneficiary?
Now let us focus on what is a contingent beneficiary.
The contingent beneficiary definition states that the entity is a beneficiary of the payouts or payments or proceeds in the event of death of the primary beneficiary. The payment is also made to the contingent beneficiary if the primary beneficiary is untraceable or refuses to accept the payment. But it is crucial that the name of the contingent beneficiary for life insurance must be mentioned clearly in the will.
Primary Beneficiary
In a life insurance policy or will or trust, the primary beneficiary is the first person to receive the benefits or the payments in case of the death of the insured person. It is usually the immediate family member like a spouse, children, or any other family member. If the primary beneficiary is also deceased, then the benefits are passed on to the secondary beneficiary. There can be multiple primary beneficiaries in a will as specified by the insured person.
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Secondary Beneficiary
A secondary beneficiary is also referred to as the contingent beneficiary.
Now, what is a secondary beneficiary?
The person’s name must be specified in the will or trust and can receive the money or the benefits of life insurance only based on certain conditions. The conditions are the death of the primary beneficiary, absence of the primary beneficiary or even refusal of acceptance of payment by the primary beneficiary within a certain time limit.
Tertiary Beneficiary
In the event of death or absence of both the primary and the secondary or contingent beneficiary, the benefits of the insurance or the money go to the tertiary beneficiary. An insured person may or may not name the tertiary beneficiary in the will or trust. Without the name, the legal department tries to access the immediate beneficiary after the primary and second beneficiaries and grants the amount accordingly.
Insurance Beneficiary
An insurance beneficiary is a person who receives the benefits or money from a life insurance policy only on the demise of the insured person. The name of the beneficiary is mandatorily mentioned in the policy documents by the insured person. It’s good to mention both primary and secondary beneficiaries named in a life insurance policy. That helps to smoothly carry out the legal proceedings in the future.
What does contingent mean in life insurance?
If you want to understand what does contingent means in life insurance, it is almost the same as that of any other sector related to will, trust, or retirement account. It is the situation in which both the insured and primary beneficiary ceases to exist due to death or demise. The contingent beneficiary is granted the benefits or money in turn. For a life insurance beneficiary minor, a legal guardian is assigned or named in the will. That’s what does contingent means for beneficiaries.
Why should you name contingent beneficiaries?
You may be often in a dilemma as to why should you name contingent beneficiaries. It is a good practice to name a contingent beneficiary to avoid probate expenses and time after the death of the insured person. Without a name in the will or trust, a legal process is needed for the distribution of the assets belonging to the deceased person. Besides, it is good to mention certain conditions related to age while maintaining a contingent listing of names.
Trustee vs beneficiary
While talking about trustee vs beneficiary, we need to understand the underlying concept of the terms.
A trustee is a person, who can be an attorney, accountant, a trusted company, a panel of banks, etc, entitled to be in complete charge of the beneficiaries’ assets. He or she is required to best utilize the assets for the beneficiary.
A beneficiary is the person or group of persons whose name is mentioned in the Trust deed and is/are benefitted by the trust earnings.
Primary vs contingent beneficiary
Let us now focus on primary vs contingent beneficiary, two very important concepts in a life insurance policy, trust or will.
A primary beneficiary is the first person entitled to receive the benefits and the money after the demise of the insured person.
A contingent beneficiary is a person who comes next in line to the primary beneficiary and receives the benefits only if the primary beneficiary is deceased, missing or refuses to accept the entitled amount.
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How does contingent beneficiary work?
It is very important to understand how does contingent beneficiary work.
In the event of inheriting assets, a person usually names his or her spouse as the primary beneficiary who received 100% of the assets. And in addition, can name a person or a group of persons as contingent beneficiaries or beneficiaries in case of death of the primary beneficiary. In the majority of the cases, child or children are named as contingent beneficiaries and are allotted contingent percentage based on the details mentioned in the will.
The insured person can name a non-profitable organization as the contingent beneficiary and the organization receives the beneficiary percentage as mentioned in the will. In the case of a minor, the name of the legal guardian needs is mentioned.
Pros and Cons of Contingent Beneficiaries
Here are the pros and cons of contingent beneficiaries for you to take note of.
Naming a contingent beneficiary in a will or trust is helpful while paying out the benefits in the absence of the primary beneficiary. Else the legal proceedings demand a process of probate for determining to whom the assets need to be transferred.
The disadvantage is that, if there is any potential beneficiary to any will or trust then there can be cases of disappointment due to the appointment of a contingent beneficiary. Often the contingent beneficiary may not be an appropriate person in receiving the benefits.
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Frequently asked questions on Contingent beneficiary
Often there are multiple queries on the contingent beneficiaries. In this section, the frequently asked questions have been conglomerated in a single place for your quick reference and guidance.
1. Who should be contingent beneficiary?
If you want to know who should be contingent beneficiary, then it should be the immediate family members. It can be one or multiple persons. Besides you can also select close family members or friends as a contingent beneficiaries.
2. What is the primary percentage/contingent percentage?
Primary percentage/contingent percentage is the percentage of proceeds that are paid to a primary or contingent beneficiary. 100% of the benefits go to the primary beneficiary. In the absence of whom, the full % of the proceeds is granted to the contingent beneficiary
3. How many beneficiaries can you have?
If you want to know how many beneficiaries can you have, it’s multiple. But it is recommended to decide the number of beneficiaries depending on the assets you have. The reason is you need to mention a noticeable amount of % to be granted to each beneficiary.
4. What happens if one primary beneficiary dies?
Now, what happens if one primary beneficiary dies. Its the secondary beneficiary who received the benefits or the proceeds of the asset. But if there is no mention of a secondary or contingent beneficiary, then there needs to be a probate to decide the person inheriting the assets.
5. What information is a beneficiary of a will entitled to?
Receiving the assets entitled to, the income, expenses, and distributions from the proceeds, receiving the information about the administration and management of the assets. These are the details you will receive and are obliged to be acquainted with if you want to know what information is a beneficiary of a will entitled to.
6. What is estate beneficiary?
A person who is entitled to be benefitted from an estate after the demise of the insured person; that’s what is estate beneficiary or can also be called a trust or will beneficiary. There are primary and contingent beneficiary who can be named in the will of the estate.
7. What is a contingent beneficiary for 401k?
It is very important to know what is a contingent beneficiary for 401K. Well, it’s the spouse of the insured person who should be the contingent beneficiary 401K. The child or any other family member can also be assigned but the spouse would need to sign an agreement to it.
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8. What Happens if There is No Contingent Beneficiary?
You need to undergo the process of probate if you want to know what happens if there is no contingent beneficiary. Through the legal proceedings, the assets are distributed to the determined beneficiary; be it a life insurance contingent, retired account contingent, etc.
9. Can the Same Person be My Primary and Contingent Beneficiary?
If you are in a dilemma as to, can the same person be my primary and contingent beneficiary? Yes, they can be. This includes spouse, child, immediate family members, relatives, and even friends.
10. Can a beneficiary be a trustee?
As an answer to the question, Can a beneficiary be a trustee, it is Yes. But the trustee cannot involve in actions that violate the trust, by placing personal interests above the entitlement requirements of the beneficiaries.
Kuntala is a versatile writer with a focus on diverse areas around work, productivity, collaboration at work, hiring, management, HR, and training. Her background of past experience in technology and consulting helps in molding razor-sharp insights into the research and user-focused content she creates. Professionally she is an IT consultant in a sales role and also a writer of short stories and poems, travel blogger, and fashion influencer.
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