It’s common to take out a life insurance policy because of a major life event, especially marriage or parenthood. In these situations, you likely already have a clear of idea of whom your death benefit should go to. However, there may be times when your primary beneficiary passes away before you and cannot receive the policy’s payout. In such a case the payout may get tied up in probate court, and it might not be disbursed according to the policyholder’s wishes. To avoid such a scenario, it is often a good idea to designate contingent beneficiaries.
- What is a contingent beneficiary?
- Considerations when choosing a contingent beneficiary
- Adding a contingent beneficiary
What is a contingent beneficiary?
You can think of contingent beneficiaries as a secondary beneficiary who receives the payout only if the primary beneficiary passes away or refuses the death benefit. Naming a contingent beneficiary is not essential, but it’s a best practice that typically has no additional cost or downside.
Once a life insurance policy is in place you can typically change the beneficiaries to whomever you like. In this way, anyone can be your contingent beneficiary including immediate or extended family members, friends, caregivers or even a charitable organization. Just as you can have more than one primary beneficiary, you can also have multiple contingent beneficiaries who may each receive a portion of the payout.
A primary beneficiary is never affected by the designation of a contingent beneficiary. If the primary beneficiary is alive, they will receive the payout, so long is the policy is in effect when the insured dies.
Considerations when choosing a contingent beneficiary
What purpose does your whole life insurance or universal life insurance policy serve and how does this inform whom you select as your contingent beneficiary? For example, if the primary benefit of the policy is to provide financial security for your family after you are gone, you would likely choose your spouse as the primary beneficiary. A good contingent beneficiary may be a parent, your children, or even your in-laws.
Similarly, if you have a spouse but no children or other family to provide for, you may want to name a charitable organization as your contingent beneficiary. In this way, you can ensure that your life insurance policy payout benefits a cause close to your heart.
Another factor to bear in mind is that you can change your beneficiaries (both primary and contingent) at any time. You may want to update your beneficiaries at some point depending on how relationships or needs evolve over time.
Adding a contingent beneficiary
So, that in mind, how do you add a contingent beneficiary? If you already have a life insurance policy, then you can easily reach out to your insurance provider or agent and find out how to add a contingent beneficiary; you may also be able to update your beneficiaries online.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.