When the whole point of life insurance is to give money  to your loved ones when they need it the most, you want to make absolutely sure the right people are getting the right amount. In order to do this, you must understand what primary and contingent beneficiaries are.

What is a life insurance beneficiary?  

A beneficiary is simply who you want the death benefit of a life insurance policy to go to when you pass. A beneficiary can be a person, multiple people, organizations, charities, estates, or trusts. Beneficiaries must have the legal power to accept assets. If minors are designated as a beneficiary, a legal guardian must oversee the money until the minor reaches a certain age. Be aware that the beneficiary designation, in most cases, trumps the Will and probate decisions. Make this decision carefully and update beneficiaries when any major life events happen, such as a divorce, birth, or death.

Primary vs Contingent Life Insurance Beneficiaries

A primary beneficiary is first in line. They will receive the death benefits first. As mentioned, multiple primary beneficiaries can be named. When you do this, you can designate different percentages to each person (see form below for example). You can also have multiple contingent beneficiaries. Contingent beneficiaries are second in line; they get paid if the primary beneficiary is already deceased, unable to be located, or refuses the money when the policy pays it benefit. Contingent beneficiaries do not receive anything if the primary beneficiary is able to accept the benefit.

Per Stirpes vs Per Capita

There is another decision to be made when choosing life insurance beneficiaries, especially with multiple beneficiaries. “Per Stirpes” designates that if one of the beneficiaries dies before the insured, that beneficiary’s share will pass to their descendants. “Per Capita” designates that if one or more of the beneficiaries dies before the insured, the death benefit is divided between the remaining beneficiaries. For example, say George bought a life insurance policy and named his two adult children, Sarah and Charles, as the beneficiaries. Sarah passes away before George does. If per stirpes is designated, Sarah’s portion of the life insurance will go to her children. If per capita is designated, Sarah’s portion will just go to Charles. This is something else that needs to be fully considered when purchasing life insurance.

What happens to life insurance with no beneficiary?

First, if you are buying a life insurance policy, you need to designate a beneficiary. Even if you are just buying a policy to cover your final expenses and do not have anyone close to you, designating someone as the beneficiary will make the process go a lot faster.

But what happens if someone dies without a beneficiary? A recent court case helped decide this. In Herring v. Campbell, John Wayne Hunter, died without having a designated beneficiary for his pension plan. His two stepsons, whom he raised with his previously deceased wife but never legally adopted, filed a lawsuit after Hunters death to challenge the distribution of his benefits. The company plan administrator determined the stepsons were not entitled to the benefit. Hunter had left his estate to them and referred to him as his sons in his Will. Both a lower court and the U.S. Court of Appeals agreed that, because the company gave the administrator authority to determine eligibility for benefits, the fact that no beneficiaries were designated in the pension plan negated the beneficiaries designated in Hunter’s Will.

Most of the time, with life insurance, if there is no beneficiary, the proceeds will go to the estate, which is then distributed according to the will. But, as you can see with Hunter’s story, it is a lot easier if you go through the appropriate steps and designate your beneficiaries.

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