Contingent Beneficiary Meaning How Does It Work

Contingent Beneficiary Meaning

Features

The claim of the contingent beneficiary over the benefits of the financial account is conditional.One can claim benefits only without a claim by the primary beneficiary.It may further limit the rights as per the contract.There may be multiple beneficiaries in a contract, which will mention their proportionate share in the agreement.

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How does it Work?

In the case of any contract for financial accounts, such as an insurance contract or a will, certain conditions might exist that define the terms relating to the beneficiary’s benefits.The beneficiary must adhere to such conditions to get the benefits under the contract.However, in any case, their rights are secondary and conditional upon the inability of the primary beneficiary to present his claim for these reasons.If the primary beneficiary accepts the benefits, the contingent beneficiary no longer remains eligible for any benefits under the contract.

Example

Let us understand the concept through an example concerning the life insurance contract.

Mr. Arson mentions in his life insurance policy that upon his death, his spouse shall be the one who shall get the insurance proceeds in the event of his death. It is also mentioned that if the spouse is deceased or of unsound mind as on the date of his death, the proceeds shall flow to the couple’s children.

In this example, Mr. Arson’s children can be termed contingent beneficiaries as their benefits are secondary to that of the primary beneficiary, Mr. Arson’s wife.

Who could be a Contingent Beneficiary?

Any individual, organization, charitable, or another trust may be chosen as the contingent beneficiary by the financial account holder. However, the selected person must be of legal age and capacity. Thus, if a minor is selected, one must ensure that a legal guardian is appointed to manage the assets until the minor attains maturity age.

Will Contingent Beneficiaries Have Rights?

The rights of the contingent beneficiary are secondary to that of the primary beneficiary. Thus, they can establish their rights over the benefits under a contract only in case of the following events: –

The primary beneficiary dies or goes missing.The primary beneficiary refuses to accept the contract’s rights when it becomes due.

However, the rights may be subjected to certain other conditions, the fulfillment required to claim possession.

Contingent vs. Primary Beneficiary

The difference is that the primary beneficiary is the first person entitled to the benefits and the proceeds under the contract. On the other hand, the contingent beneficiary is the secondary beneficiary who can claim his rights only when the primary beneficiary cannot present his claim or such conditions are met as prescribed.

Advantages

It is always beneficial for account holders to add primary and secondary beneficiaries for their accounts.That is because the assets will flow to the legal heirs’ named beneficiaries without any unnecessary delay.Counting only the primary beneficiaries is not sufficient. As a backup strategy, contingent beneficiaries should be added so that resources can flow to them in the account holder’s death.