Why do you need a contingent beneficiary on your life insurance


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Forgetting to name a potential beneficiary could have a cost.

Key points

  • Those who buy life insurance must choose a beneficiary.
  • The beneficiary receives the death benefit upon the death of the policyholder.
  • It helps to have a contingent beneficiary as well as a primary beneficiary to ensure the money goes to the right person.

When buying life insurance, choosing who to name as beneficiary is one of the most important decisions a person can make. A beneficiary is the person who receives the death benefit. The owner of a life insurance policy can name one or more people as beneficiaries, or can name organizations such as a favorite charity.

Although most people buying a policy know the importance of selecting the right beneficiary, it’s actually important not only to choose a primary beneficiary, but also to select a contingent beneficiary. Here’s why.

What is a contingent beneficiary?

A contingent beneficiary is someone who will receive a life insurance death benefit in the event that the primary beneficiary dies before the death benefit is paid.

For example, if a husband names his wife as the primary beneficiary and the husband and wife die together in a car accident, the wife would not be alive to receive the death benefit. As a result, the contingent beneficiary would receive the money instead.

Contingent beneficiaries can be anyone chosen by the policyholder, just like the primary beneficiary. A person buying life insurance can name one or more people or organizations who receive payment for the life insurance if the primary beneficiary dies before the insurer sends the death benefit.

Why is it important to name a contingent beneficiary?

When purchasing life insurance, a policyholder is generally not required to select a contingent beneficiary. And if their primary beneficiary is alive, not doing so is fine. However, it can be difficult, if not impossible, to predict the future, and most people should not risk their primary beneficiary outliving them.

Instead, they should name a contingent beneficiary to ensure they have full control over who receives the death benefit. Consumers who purchase life insurance pay premiums – often for many years – to ensure that the death benefit is available to support their loved ones. It makes sense to make sure the money goes to a person of your choice.

If a policyholder dies without a contingent beneficiary and their primary beneficiary is already deceased, the death benefit ends up being paid to the estate of the deceased policyholder – instead of a chosen person. It can cause a lot of problems.

Creditors can try to recover the money

If the death benefit is paid to the policyholder’s estate, it must be distributed through the probate process. For this reason, since the death benefit is part of the estate, creditors might try to collect the money from it in case there are more outstanding debts than the other estate assets can pay. The death benefit money could be subject to inheritance tax. And because it has to go through probate court, the process of distributing the money could be slow – and it could take months or even years for heirs to receive the money.

Who receives the payment will also be determined either by the policyholder’s will (if the policyholder has specified who should get all the assets of the estate) or by intestacy laws which control who inherits the assets of the estate if the will does not specify who gets them.

Naming a contingent beneficiary is an easy way to avoid all these problems and ensure that the money will go to a chosen person. It is worth taking the short time to appoint someone to fill this role.

Life insurance protection for you and your family

While many varieties of insurance coverage are designed to help protect a person’s family and assets, life insurance is an essential type of protection. The right life insurance can help protect the people who depend on you most if you die. Choosing the right life insurance policy is essential to ensure adequate protection for your loved ones. We’ve sorted through the different options to bring you our picks for the best life insurance policies available today.


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