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Life Insurance Primary Vs. Contingent Beneficiaries

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author image Karen Hellesvig-Gaskell
Karen Hellesvig-Gaskell is a broadcast journalist who began writing professionally in 1980. Her writing focuses on parenting and health, and has appeared in “Spirituality & Health Magazine" and “Essential Wellness.” Hellesvig-Gaskell has worked with autistic children at the Fraser School in Minneapolis and as a child care assistant for toddlers and preschoolers at the International School of Minnesota, Eden Prairie.
Life Insurance Primary Vs. Contingent Beneficiaries
Senior woman on the phone reading a bill Photo Credit Creatas Images/Creatas/Getty Images

Life insurance is intended to give financial security to family members or business associates when you die. Your insurance company wants to make sure your policy's proceeds are delivered to the person or persons designated to receive them. The recipient of your life insurance settlement is called a beneficiary. There are two main types of beneficiaries: primary and contingent.

Beneficiaries

According to the Insurance Information Institute, a beneficiary is the person or entity you name in a life insurance policy to receive the death benefit. You can name one or more people, a charity or your estate. If you have set up a trust you may also name the trustee. While encouraged, it is not mandatory that you choose a beneficiary. If one is not listed on your policy when you die the money will be added to your estate. New York Life Insurance Company strongly discourages naming minors as beneficiaries because of the potential for legal complications. New York Life recommends setting up a trust for children to receive the life insurance proceeds.

Primary vs. Contingent Beneficiaries

When you establish a beneficiary for your life insurance benefit, you will be asked for the names and social security numbers of the people you wish to receive the policy proceeds. The first name is the primary (main) beneficiary. The second name will be the contingent or secondary beneficiary.

According to Life Insurance Hub, a primary beneficiary is the person or persons first in line to receive your life insurance proceeds when you die. Single applicants typically list a parent, sibling or both. Married individuals commonly name their spouse and children. The proceeds may be distributed in equal shares or in any percentage you desire. A contingent beneficiary is entitled to receive your insurance benefits if the primary beneficiaries can’t be located or have died.

Multiple Primary Beneficiaries

When two or more people are listed as a primary beneficiary, you will have to determine what percentage will be paid to each individual. You'll also have to state your wishes should one of them die before you or can’t be located. For instance, if you split your death benefits equally between two children and one dies, you will want to specify whether you want your surviving child to receive the entire amount or if you prefer that your deceased child’s heirs receive the other half.

Key Person Life Insurance

A key person life insurance policy is purchased by an business to cover a key person in the organization. The Insurance Information Institute says a key employee is defined as an individual whose services are fundamental to the continued profitability of the company. Key person life insurance lists the company as the beneficiary and is paid benefits when a key employee dies.

Periodic Reviews

Review your beneficiary designations from time to time. You may want to make changes in the event of marriage, divorce, death in the family or other major life-changing events. Companies may change key person life insurance should a significant employee leave the company.

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