What Is A Contingent Beneficiary On A Life Insurance Policy

How Much Do You Know

What is a contingent beneficiary | Lorne Marr | LSM Insurance

If you do not name a beneficiary for your life insurance, is your death benefit paid out to your estate?

Your answer: Yes.No.I don’t know.

Correct Answer: Yes.

When you die, if you have not named a beneficiary your life insurance policy will pay your estate a payment called the death benefit. However you can name a beneficiary to receive your death benefit payment.

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How Contingent Beneficiary Assignment Works

For a contingent beneficiary of a will, virtually any conditions may be in place it depends entirely on the person drafting the will. A contingent beneficiary will receive nothing if the primary beneficiary accepts an inheritance. For example, let us say Cheryl lists their spouse John as the primary beneficiary for Cheryl’s life insurance policy and their two children as contingent beneficiaries. When Cheryl dies, John receives the insurance payout and the children receive nothing. If John predeceases Cheryl, their children each receive half the proceeds.

Benefits Of Naming A Contingent Beneficiary

If all of your primary beneficiaries die before or at the same time as you, but youâve listed contingent beneficiaries, the death benefit is distributed to the contingent beneficiaries you named.

But if you donât name a contingent beneficiary and your primary beneficiary is unable to claim the death benefit, the insurance company pays the benefit to your estate. Once the payout is part of your estate, itâs subject to estate taxes and probate. During probate, a judge decides who gets the payout â a process that can take months and reduce the amount of money your loved ones eventually receive.

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What Is The Difference Between Survivor And Beneficiary

A beneficiary can be anyone you choose to receive a lump sum or lifetime benefit and is not set by law. A survivor is defined by law. State law determines who, if anyone, is eligible to receive benefits as a survivor. The survivor and beneficiary can be the same person and often are, but dont have to be.

How Many Beneficiaries Do You Need

You may have as many contingent beneficiaries as you want. But, ultimately, you need to consider your circumstances in light of your Will, the limits of your life insurance policy or registered account. At the very least, you may want to designate a primary beneficiary and at least one contingent beneficiary for an asset or a portion of your estate.

We welcome you to discuss your estate planning strategies with us. DLegal Calgary wills and estates lawyers provide dedicated service for a variety of estate planning matters. Please shoot us an , or contact us through the website, and we will be happy to provide thorough and efficient solutions at reasonable costs.

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Contingent Vs Primary Beneficiaries

As mentioned earlier, primary beneficiaries are the persons or entities first in line to receive your insurance policys death benefit once you die. You can choose multiple primary beneficiaries and specify how the death benefit is divided among them. Contingent beneficiaries function as the backup recipients and protect your assets from probate if something were to happen to your primary beneficiaries.

For instance, if your niece serves as the sole primary beneficiary for your $500,000 policy and she predeceases you, your contingent beneficiaries would therefore become the claimants of your policys proceeds. Lets say your contingent beneficiaries are two close friends. If you assigned an even split between them in your insurance policy, theyd both receive a lump sum of $250,000. The outcome would also be the same if your niece either refused to accept the death benefit or could not be located. However, if your contingent beneficiaries also arent able to accept your death benefit, you can select a tertiary beneficiary.

What Is A Contingent Beneficiary In Ira/roth Ira

The beneficiaries of your financial assets work in same way as they do with life insurance. If you have assets that have beneficiaries listed, you will have a primary beneficiary. In addition, hopefully you will have contingent beneficiaries. The contingent beneficiary of your IRA account is one that will receive the funds if the primary beneficiaries are not able to claim the assets for any reason. The same is true for 401k accounts.

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What Information Do I Need To Provide

When you name your beneficiary, be specific. Most beneficiary designations will require you to provide a persons full legal name and their relationship to you .

Some beneficiary designations also include information like mailing address, email, phone number, date of birth and Social Security number.

Providing as much information as possible will help the financial services or insurance company verify and locate your beneficiaries, if needed making it easier and faster for them to pay your benefits. Your loved ones may need access to those funds immediately for your final expenses particularly life insurance benefits.

Why Do I Need To Name A Beneficiary

Regulation for Naming a Beneficiary on a Life Insurance Policy : Life & Retirement Planning

Many financial products including life insurance benefits are generally not governed by your will, so the only way to make sure your policy’s benefits are distributed how you intend is to make sure you’ve named a beneficiary for all of your policies and accounts.

Although it is not mandatory that you name a beneficiary, it is usually the reason people buy life insurance in the first place to provide a benefit to the people they care about. And your other assets can also provide a benefit to the people you care about when you die.

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Changing Or Adding Beneficiaries

You’re not locked into your beneficiary choices for life. Contingents and primaries can be added or replaced with little to no fuss, unless the account is irrevocable, as might be the case with some insurance policies. Making a change is often just a matter of filling out a form.

Contact your plan custodian to make changes to your IRA. Contact your plan administrator if you want to make changes to a 401 or another employer-sponsored retirement plan.

Choosing A Contingent Beneficiary

It is important to name your contingent beneficiary when you first write your will or purchase your policy. You can always change beneficiary designations down the line. For instance, if you name your wife as your primary beneficiary and then get a divorce, you can replace her as a beneficiary.

The only legal options you dont have for contingent beneficiaries are: you cannot name a minor child and you cannot name a pet. In both cases, you would instead have to name a guardian as the beneficiary, who would then be responsible for ensuring that the child or pet received the appropriate care.

For a child, the money would be held in trust until they are of legal age. For a pet, the guardian could use the money to give the animal the level of care that the policyholder would have wanted.

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What Is A Contingent Beneficiary And Why Would I Need One

A contingent beneficiary is who would receive the death benefit if something happened to the primary beneficiary. After all, life is full of unexpected outcomes. Selecting a secondary beneficiary is a prudent way to protect yourself and your loved ones from a number of what-if scenarios, such as your primary beneficiary not being alive at the time a claim is made. Its common for policyholders to name their spouse or domestic partner as the primary beneficiary and then their children or their childrens guardian as the contingent, for example. That way, if anything happened to both parents, the proceeds would go to the child/children or their guardian to manage.

Also, you know how were always saying we want to make life insurance less hard here at Haven Life? Listing a contingent beneficiary will make life less hard for that person. Basically, if something happens to you and your primary beneficiary, your death benefit would be paid to your estate if you hadnt named a contingent beneficiary. It might then be subject to distribution through the probate court which will cause a delay in disbursing money a complicated situation for your loved during an already stressful time.

Additional just in case scenarios where a contingent beneficiary would be needed:

  • Primary beneficiary cannot be found
  • Primary beneficiary refuses to accept the proceeds
  • Primary beneficiary has predeceased the policyholder

Should You Name A Contingent Beneficiary

Its wise to name a contingent beneficiary in case something happens to your primary beneficiary and he or she cant collect the death benefit. If the primary beneficiary is unable to collect and youve not named a contingent beneficiary, the death benefits will go to your estate, bringing it into the probate process.

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Should You Choose A Contingent Beneficiary

Life can be unpredictable, so it may not be a bad idea to select secondary beneficiaries just in case something happens to your primary recipients. But again, this decision depends on exactly how much financial safety youre looking for following your death. If, for instance, your spouse predeceases you, refuses your policys death benefit or cant be located, contingent beneficiaries could provide family and loved ones with money to cover your liabilities after your death.

What Is A Life Insurance Beneficiary

A life insurance beneficiary is the person, people, or organization that receive the policy’s payout when you die . Naming a beneficiary will trump your will, and the payout typically won’t have to go through probate. That means your heirs could receive a payout from life insurance more quickly than anything else you may leave them in your estate.

But naming your beneficiaries isnt just a matter of jotting a few names onto your application. There are several kinds of beneficiaries, and how you designate them could change who receives the life insurance payout at claim time.

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Contingent Vs Primary Beneficiary

Because contingent beneficiaries are a backup for primary beneficiaries, there is a lot of overlap between the designations. There is only one significant difference between the two that can help you choose whom to name as primary and whom to name as contingent. Contingent beneficiaries only receive the payout or benefit if the primary beneficiaries are unable or unwilling to receive the payout.

A primary beneficiary is required in life insurance policies and even in some retirement plans. This is the person who will receive your benefits if you die. But, if something were to happen to them and they cant accept these benefits, then your finances could end up in probate court. If you have a contingent beneficiary listed, your benefits will go directly to them, avoiding a potentially complicated legal situation.

For example, Jillian passes away in a fatal car accident. Her daughter, Anne, is listed as her primary beneficiary on her life insurance policy. Usually, Jillians life insurance policy would pay out to Anne. However, Anne was also in the car and died shortly after Jillian. Jillians husband, Paul, is listed as a contingent beneficiary. Since the primary beneficiary is deceased, the payout will go to Paul.

A probate court may reach a similar determination in this situation, even without Paul listed as a contingent beneficiary. However, the process would take longer in that case, and the outcome would be far from certain.

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If there isnt an established beneficiary for your assets after your death, these assets end up going into probate. Once this happens, the parties who wish to receive those assets will have to fight for them in court, which can lead to intense and expensive family court drama. Whether setting everything up by yourself or with the help of a professional, youll have to deal with the concept of a contingent beneficiary for your account, policy or will. So its important to know what a contingent beneficiary is, how it differs depending on what youre doing and who can even be named one.

Estate Planning is unfortunately something that many people resist or put off. But its important, as it allows you to safeguard and protect both your legacy and your loved ones. Choosing a primary and a contingent beneficiary ensures your estate and assets will go to those you intend. Failing to complete this important step means youll have no control over who ends up with what. The truth is, you can leave assets to friends, family members, even charities there really arent any rules as to who should benefit from your estate. The only important part here is it should be clear and obvious what your wishes are, and if youre leaving anything to minors, you want to address how and when they will receive assets. If you dont already have a life insurance policy in place, take a minute to run a free, no obligationterm life insurance quote.

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Can A Child Be A Contingent Beneficiary

A child can be either a primary or a contingent beneficiary. It is very common to list a spouse as the primary beneficiary and children as contingent beneficiaries. However, if the child is a minor, a guardian will need to be appointed to manage the asset, at least until the child reaches the age of majority. You could also extend the guardians management to a later age, for example, until the child graduates from college, or until the occurrence of another event you specify.

Why Name A Contingent Beneficiary

Naming a contingent beneficiary ensures that the insurance proceeds go to the person of your choosing even if your primary beneficiary has died, or cant receive the death benefit.

Suppose your primary beneficiary predeceases you, starts a fabulously successful business and doesnt need the money, or goes completely off the grid. Thats where the contingent beneficiary designation comes into play. This avoids your payout going into a complicated and expensive legal process in probate court, by which your assets are distributed in the absence of a will.

While you can always change your beneficiary designation if the person you named dies or outgrows the need for the funds, the contingent beneficiary is there to make sure someone of your choosing gets the money in case you, for any reason, havent had time to change the primary beneficiaries.

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Immediate Family As Beneficiaries

Anyone who will suffer financially by your loss is likely your first choice for a beneficiary. You can usually split the benefit among multiple beneficiaries as long as the total percentage of the proceeds equal 100 percent.

Some people name a trustworthy adult their spouse, for example and rely on their judgment to consider giving money to benefit other family members or loved ones.

Reasons To Have A Contingent Beneficiary

When it comes to wills, beneficiaries take precedence. Contingent beneficiaries can be assigned to life insurance policies, retirement plans, and annuities. Typically, the spouse or partner is assigned as the primary beneficiary of your policy. They will receive any proceeds from the policy at the time of your death. In the event that the primary beneficiary is unable to receive your proceeds, then the contingent beneficiary will be the next in line.

Selecting a contingent beneficiary for wills and life insurance policies is way to ensure that your surviving loved ones are taken care of if the primary beneficiary is unable to do so. This is also a great way to donate your proceeds to a charity of your choice after your death. This type of distribution allows for an uncomplicated process in the event of the death of your named primary beneficiary.

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How Many Beneficiaries Should I Have

There is no definitive rule on how many beneficiaries you should have, although some policies or accounts may limit you to a maximum number . You definitely want to name a primary beneficiary, and you should have at least one, but ideally more than one, contingent beneficiary. If possible, its a good idea to discuss your wishes with your beneficiaries in advance. This way, if you need to have conversations about your decisions, you have time to do it, so you can reduce the chance of things becoming complicated after you pass away.

Estate Planning is unfortunately something that many people resist or put off. But its important, as it allows you to safeguard and protect both your legacy and your loved ones. Choosing a primary and a contingent beneficiary ensures your estate and assets will go to those you intend. Failing to complete this important step means youll have no control over who ends up with what.

Is it time to update your Will to properly name contingent beneficiaries ? Trust & Will has streamlined the process so that youre protected when you need it most. Check out everything we have to offer.

Special Needs And Other Lifelong Dependents As Beneficiaries

It would seem logical to name someone who will need financial support throughout their lifetime as your beneficiary, but doing so could make them ineligible to receive government assistance which might mean a significant loss in financial support for them.

Establishing a special needs trust and naming the trust as beneficiary is one way to channel your assets or life insurance death benefit to someone with special needs without triggering laws that may work against them. Consult an attorney who specializes in estate planning to learn more about your options.

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