Loading the player...

What is a 'Contingent Beneficiary'

A contingent beneficiary is specified by an insurance contract holder or retirement account owner as receiving proceeds if the primary beneficiary is deceased, unable to be located or refuses the inheritance at the time the proceeds are to be paid. A contingent beneficiary is entitled to insurance proceeds or retirement assets only if predetermined conditions are met at the time of the insured's death (as can be found in a will).

BREAKING DOWN 'Contingent Beneficiary'

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 receives nothing if the primary beneficiary accepts an inheritance. For example, Cheryl lists her husband John as primary beneficiary for her 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.

Characteristics of Contingent Beneficiaries

Contingent beneficiaries may be people, organizations, estates, charities or trusts. Minor children or pets do not qualify because they do not have the legal power for accepting assigned assets. If a minor is listed as a contingent beneficiary, a legal guardian is appointed to oversee the money until the minor reaches the age of majority. Because many people name immediate family as primary beneficiaries, they often select close friends and relatives as contingent beneficiaries.

Multiple contingent beneficiaries may be listed on a life insurance policy or retirement account. Each beneficiary is designated a specific percentage of the money, adding up to 100%. A contingent beneficiary receives assets in the same manner stated for the primary beneficiary. For example, a primary beneficiary receiving $1,000 per month for 10 years means a contingent beneficiary receives payments the same way.

Contingent beneficiaries need to be reviewed and updated after major life changes such as marriage, divorce, birth or death. For example, after Bob and Sue divorce, he updates his life insurance policy so his daughter Samantha is the primary beneficiary and his son Jackson is the contingent beneficiary. Bob successfully blocks Sue from receiving his life insurance proceeds.

Benefits of Naming Contingent Beneficiaries

Naming a contingent beneficiary for a life insurance policy or retirement account helps one’s family avoid unnecessary time and expenses related to probate. For example, Sarah lists her children's stepfather Alex as primary beneficiary and her favorite charity as contingent beneficiary for her life insurance proceeds. Even though Alex predeceases Sarah, her children cannot fight over her life insurance benefits because she listed the charity as the contingent beneficiary.

A life insurance policy holder or retirement account owner can create contingencies preventing an inheritance without meeting certain qualifications. For example, an individual retirement account (IRA) owner could establish her daughter as the contingent beneficiary and attaches a restriction that she may inherit the money after she completes college.

RELATED TERMS
  1. Primary Beneficiary

    A primary beneficiary is the first person in line to receive ...
  2. Designated Beneficiary

    A designated beneficiary is usually a person (although it can ...
  3. Secondary Beneficiary

    A secondary beneficiary is a person or entity that inherits assets ...
  4. Discretionary Beneficiary

    Discretionary beneficiaries are individuals or entities that ...
  5. Absolute Beneficiary

    An absolute beneficiary is a designated beneficiary that can ...
  6. Donee Beneficiary

    A donee beneficiary receives intended benefits from a contractual ...
Related Articles
  1. Retirement

    The Importance of Updating Retirement Account Beneficiaries

    Retirement account beneficiaries should be reviewed and updated on a regular basis to avoid any outdated information. This prevent any confusion in a time of loss.
  2. Insurance

    Should My Child Be My Life Insurance Beneficiary?

    Don't make the mistake of naming your minor child as your life insurance beneficiary.
  3. Financial Advisor

    Why You Need to Find the Right IRA Beneficiary

    It definitely matters who you pick as your IRA beneficiary—and how you go about it. And in some cases, your best option may be to go with a trust.
  4. Retirement

    What You Should Know About IRA Beneficiaries: Part 2

    Here's how IRAs, and the beneficiaries you name, work with wills and trusts.
  5. Financial Advisor

    Avoid This Life Insurance Policy Pitfall

    Life insurance policies need to be reviewed regularly to make sure that the beneficiary you chose some time ago is still the right choice today.
  6. Retirement

    Distribution Rules For Inherited Retirement Plan Assets

    If you've recently inherited a retirement plan, you must get to know the rules for distributing the funds.
  7. Managing Wealth

    Declining An Inheritance

    Inheriting assets isn't always a good thing. Here's what to do if you want to disclaim them.
  8. Retirement

    A Look at Protecting Children With an IRA Trust

    Too many people make huge and irreversible mistakes when naming the beneficiaries for their retirement accounts.
Hot Definitions
  1. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  5. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  6. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
Trading Center