What Is a Contingent Beneficiary?

A contingent beneficiary is the designated recipient of an inheritance only if the person named as the primary beneficiary has died, cannot be located, or refuses the inheritance when the estate is settled. A contingent beneficiary, in addition to a primary beneficiary, may be specified in a will, an insurance contract, or a retirement account.

A contingent beneficiary is entitled to insurance proceeds or retirement assets only if certain predetermined conditions are met at the time of the insured’s death, such as information found in a will.

How a Contingent Beneficiary Assignment Works

A contingent beneficiary will receive nothing if the primary beneficiary accepts an inheritance.

Virtually any conditions may be cited for a contingent beneficiary of a will. For example, say Cheryl lists her spouse, John, as the primary beneficiary for her life insurance policy, with their two children named as contingent beneficiaries.

If Cheryl dies, John receives the insurance payout, and the children receive nothing. If John predeceases Cheryl, their children each receive half of the proceeds.

Characteristics of Contingent Beneficiaries

Contingent beneficiaries can be people, organizations, estates, charities, or trusts. Minor children do not have the legal power to accept assigned assets. If a minor is listed as a beneficiary, a legal guardian is appointed to oversee the money until the minor reaches legal age.

Although it’s more common for contingent beneficiaries to be immediate family members, close friends and other relatives are often listed as well.

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 who inherits will receive the assets in the same manner stated for the primary beneficiary. For example, if a primary beneficiary is to receive $1,000 per month for 10 years, a contingent beneficiary who inherits will receive payments in the same way.

Remember to Update

Contingent beneficiaries, like primary beneficiaries, need to be reviewed and updated after major life changes such as marriage, divorce, birth, or death. For example, after Chris and Rain divorce, Chris updates her life insurance policy so their child, River, is the primary beneficiary, and their other child, Riley, is the contingent beneficiary. Chris thus has successfully blocked Rain from receiving Chris’ 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. Probate is the legal process of distributing a deceased person’s assets when there is no will.

For example, Uni lists their children’s stepparent, Alex, as the primary beneficiary and Uni’s favorite charity as the contingent beneficiary for their life insurance proceeds. Even if Alex dies before Uni, Uni’s children cannot fight over their life insurance benefits because Uni listed the charity as the contingent beneficiary.

Other Conditions

A life insurance policyholder or retirement account owner can create contingencies preventing an inheritance without meeting certain qualifications.

For example, an individual retirement account (IRA) owner could establish a child as the contingent beneficiary and attach a restriction that the child may only inherit the money after they complete college.

The Bottom Line

As long as you have a valid will and your accounts are up to date, your contingent beneficiaries are unlikely to inherit. However, naming them is important to protect your family from even the remote possibility of an adverse event.