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What is a contingent beneficiary (secondary beneficiary)?

When you take out a life insurance policy, you designate one or more primary beneficiaries—typically just called "beneficiaries"—to receive the policy's death benefit.  But in the event that a primary beneficiary dies before he or she can receive the death benefit, the death benefit can instead be given to a contingent—or secondary—beneficiary.

Designating a contingent beneficiary is of especial concern if there is a chance of both the insured and a primary beneficiary perishing at the same time.  For instance, if a spouse is one's primary beneficiary, naming a contingent beneficiary would be good planning against the hazard of an accident claiming both their lives.

It is common to designate a spouse as primary beneficiary, then designate one's offspring as secondary beneficiaries.

Just as you can designate multiple primary beneficiaries, you can designate one or more contingent beneficiaries for each primary beneficiary.  In fact, you can designate contingent beneficiaries for your secondary beneficiaries.  These beneficiaries are called tertiary beneficiaries.

An example

To put all of these concepts into an example, suppose a man, John, makes his wife, Jane, the primary beneficiary of his life insurance policy.  His two children, Betty and Veronica,  are secondary beneficiaries, behind his wife.  His grandchildren are each tertiary beneficiaries, contingent upon their parents' deaths.  Let's throw in another variable and say that Betty is disabled, so John has arranged that she should receive 80% of the death benefit in the event that the primary beneficiary dies.

Now let's suppose that John, Jane, and Betty suffer heart attacks simultaneously and die.  Who gets the money?  Because the primary beneficiary is dead, the benefit passes to the secondary beneficiaries.  Veronica gets 20% of it.  But because Betty is dead, her 80% passes on to her children, who are the tertiary beneficiaries.

An alternative

If one's contingent beneficiaries are simply following a line of heirs, one can save him/herself the trouble of actually naming contingent beneficiaries by stipulating that his/her death benefit should pass to primary beneficiaries per stirpes.  This phrase means that if a beneficiary cannot receive his/her benefit, it should be passed on to his/her heirs (in perpetuity until it arrives at someone capable of receiving it).

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