Who Should I Name as Contingent Beneficiary on my Life Insurance Policy?

How many contingent beneficiaries can I name?

There is no limit to the number that you can name.  Most applications only have space for two or three, but you can attach a separate piece of paper and you may list as many as you want as long as the percentages add up to 100%.

Are there any rules for who you can list as contingent beneficiary?

There are not as many restrictions on naming a contingent beneficiary as there are a primary beneficiary.  In the case of naming a primary beneficiary, you have to have what is called an insurable interest with the primary beneficiary.

In other words, the primary beneficiary must experience some type of financial loss upon the passing of the insured person; for example, I could not go out and purchase a policy on somebody that I do not know, because I am not at a financial loss upon their passing; but in the case of a husband and wife where they are depending on each other’s incomes, they obviously have an insurable interest.  However, insurable interest is not needed to name a contingent beneficiary.

Insurance companies will require insurable interest for the primary beneficiary only but not for the secondary beneficiary.  In our example before, if you are married and leave your spouse as the primary beneficiary but then you have no children and no other relatives that you would leave as the contingent beneficiary, then you could really leave anybody as the contingent beneficiary.

There does not have to be an insurable interest.  For example: You might leave your church or place of worship or you might just leave a charity.  Even if you don’t even necessarily support that charity currently, as long as it is a person or entity, you can name them as contingent beneficiary.  Other than that, there are no rules or restrictions mandating who you can or cannot select as a secondary beneficiary.

When do funds get paid to a contingent beneficiary?

The only scenario when a contingent beneficiary receives life insurance proceeds is when any or all of the primary beneficiaries are dead upon the passing of the insured; in other words, if you would list your spouse and two children each to get one-third as primary beneficiary and then you were to pass away; and let’s say you were in an accident with your spouse, then your spouse would obviously not be available to receive his or her portion of the funds,.

However the two other remaining primary beneficiaries – your children – would inherit their parent’s portion of the proceeds as primary beneficiaries; so in other words even though they were originally only listed on the policy as receiving two-thirds of the death benefit, the other one-third does not go on to whoever it listed as the contingent beneficiaries.

First, the primary beneficiaries must receive – if any of them are living – all of the death benefit proceeds; so keep that in mind when you are naming a contingent beneficiary that they will not see a dime as long as any primary beneficiary remains living.

Who should I name as contingent beneficiary if I am married with minor children?

This is a special circumstance and one that you might check in with an attorney about, but my understanding is that in most states, if life insurance proceeds go to a minor child, they cannot obviously receive a check for that amount of money, so the funds have to be held in the trust.

The trust will probably be created by a court, and the court will assign a fiduciary to act as trustee of those funds until the minor becomes eighteen years old when they can take over the ownership of the trust.  Until then, one of the problems you have – that I have heard – is whoever would become guardian of your children could have a very difficult time accessing any funds from your children’s trust even if they need money for things like books or tuition or clothing or just regular living expenses with feeding in your mouth.

I have heard it can be difficult to petition the trustee to really fund to that guardian for that purpose.  Having said that, you might consider leaving some portion of the proceeds to whoever you want to be the guardian of your minor children, and that is typically done in a will where you name your guardianship of your children.

If you don’t have a trust, then the next-best thing is a will so at least you can name the guardian of your children and again, you might consider leaving some portion to the guardian and the rest to your children.

It is not necessarily a bad thing to leave that money in trust to your children because again, it will be protected and available for them most likely when they turn eighteen, so that is a good thing.

If you have any other questions about naming a contingent beneficiary or about getting a term life insurance quote, please call us at 877-996-9383.