Many already know the benefit of life insurance is to pay a beneficiary if the insured dies within the term of the policy. It’s possible you already have an idea of who you would like this money to go to in the event of your untimely death, such as a spouse, a sibling, a child, or a parent. What happens, however, if your beneficiary should predecease you? If you named your spouse, what happens if you die in the same untimely accident? Typically, the benefits would go to a contingent beneficiary. But what does contingent mean in life insurance? Let’s explore what this entails:
What Does Contingent Mean In Life Insurance?
A lot can happen in twenty years. Imagine, then, signing up for a twenty year life insurance policy. You chose your beneficiary based on the most logical option at the time, assuming that they will be the ones you are protecting should something happen to you. What if they are the ones who perish first, however?
It is wise to have another person in mind if this scenario were to play out. This is known as having a contingent beneficiary when you sign up for life insurance. It ensures that your policy will pass on to those you are trying to protect. The most important thing to keep in mind is that the contingent beneficiary should understand what this means for them. They won’t receive the proceeds of the policy, rather they are considered a back up for the primary beneficiary.
Selecting a contingent beneficiary greatly reduces the possibility of your life insurance policy paying the claim to your estate. Life insurance policy death benefits are not subject to probate when there is a valid beneficiary. However, without a beneficiary or contingent beneficiary the insurance company is obligated to pay the benefit to the estate and would therefore be subject to the costs and time constraints of probate court. Be careful, though, as a contingent beneficiary acts as a second line to your death benefits. This person would not be awarded any portion of the claim if the primary beneficiary is still alive. If you want to split your death benefits between several people it may be more effective to name more than one primary beneficiary.
Are you unsure which option is best for you? Our agents are well versed in the benefits and disadvantages for every option. We can help make choosing the right life insurance policy simple. Call us today!