Mom feels comfort knowing she has a secondary beneficiary

A secondary beneficiary can give you additional peace of mind at no additional cost. We explain how.

Choosing a beneficiary for your life insurance is arguably one of the most crucial steps in purchasing your policy. If you have a life insurance policy with just one beneficiary listed, you may have missed a critical step in the process. The designation of a contingent beneficiary can be helpful in ensuring your life insurance payout is used exactly as you intended.

What is a Contingent Beneficiary?

A contingent beneficiary, also referred to as a secondary beneficiary, is simply the person named in your policy that will receive your life insurance death benefit should your primary beneficiary pass away before, or at the same time as you. You can also name a tertiary beneficiary, who would receive your life insurance payout if both your primary and secondary beneficiaries were deceased at the time of your passing.

Insurers rarely require contingent beneficiaries to be named when the policy is issued, but it may be a smart practice if you want to ensure that your payout benefits the people you intend.

Why Should I Designate A Contingent Beneficiary?

Potentially Avoid Legal Proceedings

A contingent beneficiary may become significant if there is no beneficiary living to accept your policy's payout. In this case, your policy might be subject to legal proceedings in which the government would judge who should receive your death benefit. This can be a long, drawn out process that could cost your loved ones additional money and time.

Help Ensure Children Are Cared For

Despite listing a spouse or partner as the primary beneficiary, many intend their life insurance to help protect their children from financial hardship. If both you and your spouse passed away, you'd still want to help ensure that your children are protected. While it may be tempting to list a child as your contingent beneficiary, there are some issues that can be associated with that.

First, if your child is still a minor at the time of a life insurance payout, a court might be asked to decide who should look after the funds until they reach 18. This process can be long and arduous. It's also important to consider that even a child of legal age may not yet have the maturity required to handle a large sum of money.

A smart practice might be to name a contingent beneficiary that is also who you've named in your will to be your children's caretaker should something happen to you. This person would agree to care for your child and see after the money until they are a designated age.

It's Free

Choosing a secondary and/or tertiary beneficiary costs you nothing. This is a free feature of your policy that can only help in ensuring that your death benefit goes to the people you intend. You can make and change the designation at any point in the lifetime of your policy. So if you have a change in marital status, your children reach adulthood or you suffer a death in your family, you can adjust the beneficiary of your policy accordingly.

It may also be important to note that you do not have to choose just one person to inherit your death benefit. You can include multiple beneficiaries at each level, and elect a percentage that you'd like each to receive.

To learn more about beneficiaries, read our guide. Make changes to your existing American General Life policy here.

Help protect your family with Life Insurance!

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