Life happens quickly. In the blink of an eye, a tragic accident or sudden illness can take someone from their family. If that person happens to be the primary beneficiary of your life insurance policy, what happens to your death benefit?

It’s often good to have a backup plan in life – including with your life insurance. That’s where a contingent beneficiary comes into play. Here’s why picking a contingent beneficiary is a smart move to help make sure your life insurance goes to those who matter most.

What is a contingent beneficiary in life insurance?

So, what is a contingent beneficiary, and how does this person play a role in your policy? Beneficiaries are the people that you want to protect with the policy after your death. These people (or organization, trust, etc.) will receive the death benefit – the lump sum payment issued by the life insurance company after your death if your policy remains in place. After all, that’s the reason you’re purchasing life insurance: to leave behind money to support someone else’s needs. You can change the beneficiary down the road if you would like to do so, but it’s important to have at least one current beneficiary listed to avoid having the money go unclaimed.

Not all beneficiaries are the same. When you apply for life insurance, you’ll be asked to list a primary beneficiary for your policy, along with any additional primary and contingent beneficiaries.

How do contingent beneficiaries differ from primary beneficiaries?

A primary beneficiary is the person who’s first in line for your life insurance payout. This person (or people) receives the full benefit as long as they’re living.

So, what does contingent mean in life insurance? Think of them as the just-in-case option. If the primary beneficiary has died before you, the contingent beneficiary receives the death benefit. Here’s how it works:

• Primary beneficiaries: You’ll name at least one person as a primary beneficiary. This is often a spouse or someone else who you want to receive your death benefit above all others. You can list more than one. In that case, the funds are divided equally among them, or you can decide how to divide up the money.
• Contingent beneficiaries: Sometimes called secondary beneficiaries, these people are the next in line to receive your death benefit. This could be just one person or more than one. The only time the contingent beneficiary receives any funds is if the primary beneficiaries are unable to do so. You can choose a trusted friend or relative as a contingent beneficiary, or even a charitable organization that’s meaningful to you.

Remember, the life insurance contingent beneficiary does not receive any money from the policy unless the primary beneficiary cannot do so.

What if there is no contingent beneficiary on a life insurance policy?

As long as you have a primary beneficiary listed and that person can be found, not having a contingent beneficiary will not impact your policy. When you die, the primary beneficiary will receive the death benefit.However, if your primary beneficiary dies and you do not have a contingent listed, there’s no one named to claim the policy’s benefit.

A death benefit can go unclaimed

In some situations, this could lead to the death benefit from the policy going to your estate. It may also lead to the death benefit being impacted by taxes paid by your estate at the time of the death. Other times, it can go unclaimed and eventually get turned over to the state.

That’s not what you want. After all, you’ve paid into this policy for years for a reason. Naming a contingent beneficiary in life insurance makes good financial sense. There’s no real reason not to do so. Remember, too, that you can name more than one contingent beneficiary on a life insurance policy. If you’re unsure how to divide funds amongst your beneficiaries, consulting with a financial professional may help.

A policy payout could end up with the wrong person

Finally, it’s important to keep all your beneficiary information up to date. As the years go on, marriages, deaths, or births can mean new people to protect. If one of your beneficiaries passes away or you just want to have the payout go to someone else, be sure to reach out to your life insurance company to update your beneficiaries. Most insurance companies just need you to complete a simple form to make the switch.

How does a contingent beneficiary receive money from life insurance?

Let’s say you have a term life insurance policy to cover student loan debt that your parents have co-signed. To support them in repaying the debt if something happens to you, you name your parents as the primary beneficiaries of your policy. As a contingency, you list your favorite charity as the secondary beneficiary. If heaven forbid your parents were to pass away while your policy is in force, your charitable organization would be next in line to receive the death benefit if something happened to you.

Buying life insurance is a dependable and affordable way to protect loved ones after your death. And taking the time to name both primary and contingent beneficiaries is a quick and easy step that can help ensure the policy payout goes where you want it to go.

Still have questions about how contingent beneficiaries work for life insurance?

We’re here to help. Get your quote online today or call one of our agents at (855) 291-6365.

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.