What Is a Contingent Beneficiary?

A contingent beneficiary is the person or organization that is second (or third, or fourth) in line to receive the payout from your life insurance policy if your primary beneficiary is no longer around to receive it, declines the benefit, or can’t be located.

What’s a contingent beneficiary?

When you are deciding who should get the payout in case you should pass away, think of a contingent beneficiary as a Plan B. 

If, for some reason, your primary beneficiary can’t or won’t take the payout, the contingent beneficiary gets the money instead, so you still have control over who gets the life insurance proceeds. You can name pretty much anyone as your contingent beneficiary, including family members, friends, business partners, or non-profit charitable organizations.

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 can’t receive the death benefit. 

Suppose your primary beneficiary predeceases you, starts a fabulously successful business and doesn’t need the money, or goes completely off the grid. That’s 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, haven’t had time to change the primary beneficiaries. 

What do I need to name a contingent beneficiary?

As with a primary beneficiary, you will need all relevant identifying information to name a contingent beneficiary: full name, address, and date of birth. This ensures that there is no confusion about whom you have named to receive the insurance proceeds. If none of your beneficiaries can be located, the insurance payout goes into your estate.

Is the contingent beneficiary guaranteed to get some portion of the payout?

No. The contingent beneficiary gets the death benefit only if your primary beneficiary can’t or won’t take the payout. 

Remember, a contingent beneficiary is not a partial beneficiary. Contingent beneficiaries won’t get any of the death benefit if the primary beneficiary is still around to receive the payout, and accepts it. If you want to make sure a person receives part of the death benefit, you need to name that person or organization as a primary beneficiary and decide how much of the death benefit you want them to receive.

Who can I name as my contingent beneficiary?

As is the case with primary beneficiaries, contingent beneficiaries can be people, businesses, or charitable organizations. With the term life insurance offering from Lemonade, you could pick your spouse (or ex-spouse), domestic partner, parents, kids, business partner, fiancé or fiancée, sibling, grandparent, or organization. While you choose your primary beneficiaries during the life insurance application process, you would select any contingent beneficiaries later. 

If your contingent beneficiaries are minor children and cannot receive the funds, you will need to designate a guardian or legal trust. 

Just as you can name co-beneficiaries, you can name co-contingent beneficiaries, each of whom receives whatever percentage of the payout you designate if the primary beneficiary is not around. If you name two contingent beneficiaries but don’t name percentages, though, they will get equal portions of the death benefit.

What if I ever change my mind about who should get the payout?

No problem. It’s a good idea to review your choices periodically, and it’s no trouble to change your beneficiaries. You might want to revise the contingent beneficiary or the percentage of the funds that person would receive in case of your death if you or they experience major life changes. 

What sort of life changes? If you remarry, for example, or if your children launch the next hugely successful Silicon Valley startup, you can easily reassign the death benefit to a new spouse or to some other family member who would benefit from the influx of cash. If you’ve assigned a charitable organization or company as your beneficiary, you’ll want to find another recipient if they should go out of operation.

If you’ve named an irrevocable beneficiary, and you want to make an adjustment to your policy, you’ll need to ask them for their written consent before you’re able to go forward with the change.

Are there any situations in which the contingent beneficiary would be ineligible to receive the payout?

Just as with primary beneficiaries, there are a couple of circumstances where a contingent beneficiary cannot receive the death benefit. 

First, if the beneficiary takes your life in order to get the death benefit, they can’t collect, under what is known as “the slayer rule.” Nothing to do with the heavy metal band Slayer, or the fact that Slayer, inarguably, rules. So if someone wants to take out a million dollar policy on you, be sure you trust them! We suppose they would have to knock off the primary beneficiaries, too, so, if your primary beneficiaries start to mysteriously die, watch your back. In any case, you have to sign the papers, so at least they can’t do it without your knowledge. (We’re not trying to make light of any of this, but when we’re talking about life insurance, it helps to have a healthy sense of humor.)

Second, if the policyholder commits suicide within two years of taking out the policy, insurers will not pay the benefit, though some insurers do refund the premiums.

If you, or someone you know, is at risk, the National Suicide Prevention Lifeline is available around the clock. Just dial 988 or reach them online, for free, confidential support.

A few quick words, because we <3 our lawyers: This post is general in nature, and any statement in it doesn’t alter the terms, conditions, exclusions, or limitations of policies issued by Lemonade, which differ according to your state of residence. You’re encouraged to discuss your specific circumstances with your own professional advisors. The purpose of this post is merely to provide you with info and insights you can use to make such discussions more productive! Naturally, all comments by, or references to, third parties represent their own views, and Lemonade assumes no responsibility for them. Coverage may not be available in all states.