What Is a Contingent Beneficiary and Who Can Be Named One?
Whether setting up a financial account, applying for life insurance or executing a will, there's a lot of paperwork required to get everything set up in a way that saves you and your loved ones any added stress.
One admittedly morbid but still incredibly important detail that has to be dealt with for all of these is who gets them after your passing. The more beneficiaries you plan on having, the more complex it can be.
Whether setting everything up by yourself or with the help of a professional, you'll have to deal with the concept of a "contingent beneficiary" for your account, policy or will. So it's important to know what a contingent beneficiary is, how it differs depending on what you're doing and who can even be named one.
Let's start with the first part. What exactly is a contingent beneficiary?
What Is a Contingent Beneficiary?
A contingent beneficiary is the party you select to receive an asset (such as a life insurance payout or property you own) in the event that your first choice to receive these is unable to or chooses not to accept the asset. It is, in a way, a back-up plan to try to make sure your assets still go to a preferred party should something go awry.
A contingent beneficiary isn't just bound by whether or not the primary beneficiary is able to accept the asset first. With a document like a will, you can put other conditions in as well. For example, if your contingent beneficiary for your assets is your 18-year-old child, there may also be a condition that these assets are theirs to receive only after they turn 21, or after they graduate college.
You are able to name more than one contingent beneficiary if you choose, convenient in case, for example, a mother wanted to make her three children the contingent beneficiary for her life insurance policy. You will just have to note the percentage of the asset that each beneficiary would receive - simple enough if you want to divide it equally among your children, but a bit more complicated if you want to give a larger percentage to one party than another.
Life insurance is a common thing that necessitates both a primary and contingent beneficiary, but other financial accounts - a 401(k), an individual retirement account (IRA), a living trust, etc. - can have contingent beneficiaries. Once you've named someone a beneficiary, you should notify them so that they are not caught off guard should they end up in line to receive something.