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).

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.

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.

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.