Insights: A contingent beneficiary receives the death benefit if the policyholder dies and the primary beneficiary can’t collect the payout. 

When you purchase a life insurance policy, you must name a primary beneficiary. That person receives the death benefit after you die. 

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However, you can also name a contingent beneficiary who is next in line if the primary beneficiary can’t receive the death benefit when you die. 

“In case your primary beneficiary predeceases you, you should also name contingent beneficiaries,” says Stafford Thompson Jr., senior vice president of life product management for Lincoln Financial Group.

Read on to learn more about contingent beneficiaries and why it's wise to add at least one such beneficiary to your life insurance coverage and advice on how to name beneficiaries.

Key Takeaways

  • A contingent beneficiary is a secondary beneficiary who receives a death benefit if the primary beneficiaries aren’t able to collect it.
  • Contingent beneficiaries are often children, potential guardians to the policyholder’s children, family members, friends and charitable organizations.
  • You don’t have to assign a contingent beneficiary, but it can be a wise decision.
  • A policyholder may name as many life insurance policy beneficiaries as he or she wants.
  • If both the primary and contingent beneficiaries die, a life insurance policy’s death benefit will go to the policyholder’s estate.

What is a contingent beneficiary?

A contingent beneficiary is someone named to insurance policies who receives the death benefit if the primary beneficiary can’t receive the payout for whatever reason. 

A contingent beneficiary is sometimes known as a “secondary beneficiary.”

For example, it’s possible that your primary beneficiary may die before receiving the death benefit. Or, the life insurance company may be unable to locate the individual.

In rare cases, a primary beneficiary might flat-out refuse to accept the death benefit. 

How contingent beneficiary assignments work

The contingent beneficiary is simply a “backup” recipient if the primary beneficiary can’t receive the death benefit. 

A common misconception is that the primary and contingent beneficiaries both get portions of the death benefit. That’s not the case.

Instead, the contingent beneficiary won’t receive any portion of the death benefit if the primary beneficiary is available to receive the benefit. 

If you want two or more people to receive a portion of your death benefit, they all should be named as primary beneficiaries. You can then decide which percentage of the death benefit each of your primary beneficiaries will receive.

Primary beneficiary vs. contingent beneficiary 

A primary beneficiary is an individual or organization you name to receive the death benefit from your life insurance policy after you die. Your decision on beneficiaries can be vital for your estate planning.

By contrast, a contingent beneficiary is a person or organization who will receive your death benefit if the primary beneficiary has died or cannot or does not want to accept the benefit for some reason. A contingent beneficiary doesn't inherit a death benefit unless the primary beneficiary or beneficiaries aren't able to collect. For instance, if the primary beneficiaries are dead.

You can have more than one primary or contingent beneficiary. 

Do you need a contingent beneficiary?

Typically, you’re not required to name a contingent beneficiary when purchasing a life insurance policy. But that doesn’t mean you shouldn’t name a contingent beneficiary. 

If you fail to name a contingent beneficiary and your primary beneficiary dies or is otherwise unable or unwilling to accept the death benefit, the benefit from your policy will be paid to your estate. 

What happens if there is no contingent beneficiary?

If your primary beneficiary no longer is around and you failed to name a contingent beneficiary, the death benefit from your policy is paid to your estate. 

Not only does this make the death benefit subject to estate taxes, but it also means the death benefit will go through probate. This could mean that a judge will determine where your death benefit ends up. 

In addition, once the death benefit is paid to your estate, it’s fair game for creditors.

Who should be your contingent beneficiary?

The choice of a contingent beneficiary is up to you. 

Here’s who is often named as contingent beneficiaries:

  • A child or children with the policyholder’s spouse named as the primary beneficiary
  • An individual who would serve as the guardian to your children if you die
  • Other family members and friends
  • A charitable organization

Just remember that naming minor children as contingent beneficiaries can create issues, Thompson says.

“An insurance company will not knowingly pay insurance proceeds outright to minor children,” he says. “Therefore, if a minor is named as a beneficiary, a guardian or custodian may have to be appointed by a court at the expense of the children.” 

Also, remember to keep your list of contingent beneficiaries updated. For example, if your parents are contingent beneficiaries and both die, you will want to name new contingent beneficiaries. 

How many beneficiaries should you have?

You can have as many – or as few – beneficiaries as you like. 

However, just remember that if you name just a single beneficiary and that person dies, the death benefit from your policy will be paid out to your estate. 

It’s usually wise to name at least two beneficiaries. 

Frequently Asked Questions

Should you name a contingent beneficiary?

It’s wise to name a contingent beneficiary in case something happens to your primary beneficiary and he or she can’t collect the death benefit. If the primary beneficiary is unable to collect and you’ve not named a contingent beneficiary, the death benefits will go to your estate, bringing it into the probate process. 

Who should you never name as your beneficiary?

As long as you follow the rules, you can designate the person or entity of your choice as your beneficiary. However, some people may not qualify to be beneficiaries. 

One example is minor children. You may need to name a minor child’s primary legal guardian (often a spouse) as the beneficiary. Or, consider setting up a trust for the insured’s minor children and name the trust as the recipient of the life insurance proceeds. 

“This can help avoid many of the legal restrictions imposed on outright distributions and is a much safer and surer way to provide financial security for those who can’t or don’t want to handle large sums of money or other assets,” Thompson says.

Should you name your estate as beneficiary?

It’s usually best to avoid naming your estate as the beneficiary in most cases, Thompson says.

"Naming the insured’s estate as beneficiary may incur state inheritance taxes, depending on where you live,” he says. 

Naming your estate as the beneficiary also subjects the death benefit to added expenses and delays associated with probate, Thompson adds.

Can you name two contingent beneficiaries?

Yes, you can name as many contingent beneficiaries as you wish. Just remember to clearly designate what percentage of your estate you want each of the multiple contingent beneficiaries to receive. 

What happens if a contingent beneficiary dies?

The primary beneficiary is first in line to receive the benefit. If that person dies, the contingent beneficiary is next in line. 

If both the primary beneficiary and the contingent beneficiary die, the death benefit will go into your estate and will be subject to all the rules surrounding an estate.