Life insurance policies necessitate the selection of a beneficiary, this is the individual who will receive your policy’s benefits during the payout period. Many rules also require you to choose a designated beneficiary. This individual will receive the benefits if the primary recipient is unable to. The beneficiary contingent is often in communication with the primary beneficiary if he or she has already died, cannot be located or is refusing to take the funds.
What is the definition of a contingent beneficiary?
When you create a will, purchase a life insurance policy or open a retirement account, one of the first questions you’ll likely be asked is who you want to be named as the primary beneficiary. Your primary benefactor is the individual or individuals who will take advantage of the policy or account when you pass away.
Your beneficiary can be an organization or foundation, rather than a specific person. For instance, you can choose to name your college’s alma mater in order to receive the payment for your diploma in your name.
A contingent beneficiary is the individual or organization that will receive the benefits if the primary beneficiary has died, is unable to be located or, for some reason, has refused to pay. You could conceive of the contingent as the supplementary, or backup, beneficiary – someone who is benefitted if the primary individual is unable to receive benefits.
You can designate multiple primary and contingent beneficiaries, and many individuals do. However, the contingent recipients will not receive the money from your policy unless all of the primary recipients are deceased. If even one of the primary recipients steps in, the contingent recipients are not entitled to the death benefit.
Primary and contingent recipients: what is the distinction?
When contemplating each type of beneficiary, it may serve to consider the primary beneficiary as the first individual who receives benefits from the will or policy. If someone has a term insurance policy with a $100,000 investment, and they pass away while the term is still active, the person who is designated as the primary will receive $100,000 from the company. If the primary recipient is unable to participate, the contingent recipient will receive the $100,000 payment.
The recipients, both primary and contingent, are not necessary individuals. Policyholders can choose to direct the money for their death benefit to be given to an organization like the animal shelter, church, museum or university.
If you want to name multiple recipients, you just have to state the designations of your beneficiaries when you buy the policy. A policyholder may choose to designate their spouse as the primary beneficiary and their two children as the contingent beneficiaries, each receiving half of the payment. Remember that the beneficiary structure may have an effect on the probability of a contingent beneficiary receiving benefits. For instance, someone could designate three primary recipients and one contingent beneficiary for a life insurance policy that is based on the amount of money invested. In this scenario, if one beneficiary is deceased, the other two primary recipients would split the payment into equal parts. The beneficiary contingent on the death of the three primary recipients or their inability to be located would only receive a payment if all of the primary recipients died or were unable to be located.
Any stipulations associated with the primary recipient also apply to the contingent. If the money were to be spent all at once, this would also apply to the contingent beneficiary.
How to choose a beneficiary contingent on
Many financial experts suggest that you should name your beneficiary in your will or policy purchase. As long as your recipients are replaceable, you can always alter the beneficiary designations at any time. For example, if you designate your spouse as the primary beneficiary of their own money, and then get divorced, you can take over their beneficiary designation.
You can theoretically name anyone, individuals, organizations or businesses as a beneficiary, but if you want to name a minor as a beneficiary, there are additional considerations that may need to be taken into account. For a younger individual, you may need to stipulate that the money be placed in a trust and that the trust be placed in a younger individual until the individual becomes adult and can take possession of it. Alternatively, you can designate a trusted caregiver as the manager of the money until the minor becomes independent.
Some things you may want to consider when choosing who your beneficiaries are:
- D You have family members, and if so, who would take care of them if you died?
- If you’re responsible for dependent individuals, are these individuals considered legal adults? How would your policy deal with smaller recipients (primarily or contingent on a second event)?
- Who would take care of your finances if you died?
- Beyond your personal life, is there an organization that you would want to bequeath money to? If you and your primary recipient both succeed, what would you like your financial assistance to go to?
Must I choose a designated beneficiary?
Since it’s impossible to be completely certain that the situation we’ll have when we die will be identical to the situation we purchased a policy from, the majority of financial professionals believe that it’s beneficial to have a contingent beneficiary in mind, even if this isn’t the first person you want to receive the payment.
Directing the attention of your assets to that specific individual (or organization or charity) may facilitate the distribution of your estate more simply because your wishes are already known. No one can dispute your insurance benefits if you’ve documented your primary and contingent beneficiaries, and your intended payout. If you’re unsure of how you’d like to arrange your beneficiaries, talking to a licensed financial professional may be beneficial in helping you figure out how to designate your beneficiaries in order to achieve the financial goal you want after your passing.
What occurs when you are deceased and have no direct beneficiaries?
If you had life insurance but no designated beneficiary, two scenarios could occur. If your primary recipient is still alive and capable of receiving the funding, the lack of a secondary recipient will have no effect. However, if your primary beneficiary is no longer alive or unable to accept the funds, your life insurance company must pay the money to your succession.
Estates are claims about estates, which are typically handled through a protracted process. If you have descendents, they may receive less money at the end because of tax and fee obligations.
