Contingent Beneficiary Life Insurance: Why You Need One

A **contingent beneficiary** (also called a secondary or backup beneficiary) is the person or entity who receives your life insurance death benefit if your primary beneficiary is unable to receive it.

• Also called secondary beneficiary or alternate beneficiary
• Only receives proceeds if primary beneficiary cannot
• Can be a person, trust, charity, or estate
• Essential backup plan for estate planning

Without a contingent beneficiary, your life insurance death benefit may go places you never intended.

• **Risk 1: Probate Court**
• Without contingent, proceeds often go to your estate
• Estate assets go through probate - a public, slow, expensive process
• Probate can take 6-18 months before heirs see any money
• **Risk 2: Wrong People Inherit**
• Estate distribution follows intestacy laws (state default rules)
• May not match your wishes - distant relatives might inherit
• **Risk 3: Creditor Access**
• Life insurance payable to your estate can be seized by creditors
• Direct beneficiary designations are usually protected
• **Risk 4: Tax Implications**
• Estate inclusion may trigger estate tax for large policies
• Direct beneficiary payout typically avoids this

Understanding the relationship between primary and contingent beneficiaries is essential.

• **Primary beneficiary examples:**
• Spouse (most common)
• Children (equal or unequal shares)
• Trust for minor children
• **Contingent beneficiary examples:**
• Children (if spouse is primary)
• Siblings or parents (if children are primary)
• Charity (if family is primary)
• Trust (as backup)

Properly naming contingent beneficiaries requires attention to detail.

• **Best practices:**
• Use full legal names (not "my children" or "my kids")
• Include Social Security numbers and dates of birth
• Specify percentages even if equal (write "50%" not "equal")
• Add per stirpes for children/grandchildren protection
• Name a contingent to your contingent (tertiary beneficiary) if complex estate

1. 1**Contact your life insurance company:** Request beneficiary change form
2. 2**Complete primary beneficiaries first:** Name and percentages (must total 100%)
3. 3**Fill out contingent section:** Use full legal names
4. 4**Provide identifying information:** SSN, date of birth, relationship
5. 5**Specify percentages:** Must total 100% (e.g., 50/50 to two children)
6. 6**Add per stirpes if desired:** Protects grandchildren if child dies
7. 7**Sign and submit:** Follow insurer's submission requirements
8. 8**Request confirmation:** Get written proof of update

Avoid these frequent errors that can defeat the purpose of naming contingents.

• **Mistake 1: Not naming a contingent at all**
• Most common error - leaving contingent section blank
• **Mistake 2: Naming your estate as contingent**
• Defeats the purpose - triggers probate anyway
• **Mistake 3: Using vague language**
• Writing "my children" instead of naming them specifically
• Insurer may require legal proof of who qualifies
• **Mistake 4: Not updating after life changes**
• Divorce, death of beneficiary, new children - all require updates
• **Mistake 5: Naming minors without a trust**
• Children under 18 cannot directly receive large sums
• Court appoints guardian - creates delays and costs
• **Mistake 6: Conflicting percentages**
• Primary percentages add to 100%, but contingent only adds to 80%
• Creates confusion and potential disputes
• **Mistake 7: Forgetting per stirpes**
• Naming children as contingent without per stirpes
• Grandchildren excluded if their parent dies before you

These scenarios show how contingent beneficiaries work in practice.

• **Example 1: Simple Family - All Living**
• $1,000,000 policy
• Primary: Spouse 100%
• Contingent: 3 children, 33.33% each
• Result: Spouse receives $1,000,000 (primary is alive)
• Contingent never takes effect
• **Example 2: Primary Predeceases**
• $1,000,000 policy
• Primary: Spouse 100% (but spouse died 2 years ago)
• Contingent: 3 children, 33.33% each
• Result: Each child receives $333,333
• **Example 3: Simultaneous Death**
• $500,000 policy
• Primary: Spouse (dies in same accident)
• Contingent: 2 children per stirpes
• Result: Each child receives $250,000
• **Example 4: No Contingent Named (Problem!)**
• $500,000 policy
• Primary: Spouse (died before policyholder)
• Contingent: None named
• Result: Proceeds go to estate → probate → 12-month delay → legal fees
• **Example 5: Contingent with Per Stirpes**
• $600,000 policy
• Primary: Spouse (deceased)
• Contingent: 3 children per stirpes (Child #2 also deceased, has 2 kids)
• Result:
• - Child #1: $200,000
• - Grandchild A (from Child #2): $100,000
• - Grandchild B (from Child #2): $100,000
• - Child #3: $200,000