Difference between Primary and Contingent Beneficiary

By: | Updated: Nov-18, 2017

When you get an insurance policy, trust, or savings account, you are usually required to indicate who your primary and contingent beneficiaries are. However, many people do not know whose names to put because they are not even sure what “primary” and “contingent beneficiaries” really mean. In this article, we will explore the differences between the two.

Summary Table

Primary BeneficiaryContingent Beneficiary
The person who will receive a specified share of the account holder or policy holder’s assets immediately upon his or her deathThe “back-up” or “alternate” person who will inherit the assets when the primary beneficiary dies before the policy holder

Descriptions

insurance policy

A primary beneficiary is a person who will receive a specified share of your assets immediately upon your death.

If you are the account holder, your primary beneficiary is the person or persons you most want your money to be given to when you die. A person whose marital status is single usually lists his or her parents or a sibling as the primary beneficiary, while married people typically list their spouse, children, or both.

There can be more than one primary beneficiary in a policy. If you have multiple primary beneficiaries, you may choose to give them equal or unequal shares of your assets in the event of your death. Let us take a look at these examples below:

  • Peter named his siblings, Greg and Hank, as his primary beneficiaries. He decided to give each of them fifty percent of his assets upon his death. Therefore, if he has $1,000,000 when he dies, each brother will get $500,000.
  • Steven has three daughters, Jamie, Joanna, and Jane. Jamie has a chronic illness, so Steven decided to give her fifty percent of his assets when he dies. Jane and Joanna are both successful business women, so Steven decided to give them twenty-five percent each.

If one of the primary beneficiaries dies before the account or policy holder, that beneficiary’s benefits will be distributed in equal shares among the surviving primary beneficiaries. Let’s take a look at some examples below:

  • Peter’s brother, Greg, had an accident and died before him. Upon Peter’s death, Greg’s share of fifty percent will automatically go to Hank, the surviving primary beneficiary. Therefore, Hank will receive 100% of Peter’s assets upon his death.
  • Steven’s daughter, Jamie, died before he did. Upon Steven’s death, Jamie’s share of fifty percent will then be distributed in equal shares to the surviving primary beneficiaries Jane and Joanna. Therefore, Jane and Joanna will each receive 50% of Steven’s assets upon his death.

A contingent beneficiary, on the other hand, is the person who receives his or her benefits when all primary beneficiaries named die before the account holder. He or she is often referred to as the “back-up” or “alternate” person to receive the benefits when the primary beneficiary dies before the account holder or when the primary beneficiary cannot be located.

The account holder may name several contingent beneficiaries. If the primary beneficiaries are still all living upon the account holder’s death, the contingent beneficiaries do not inherit anything.

To better understand this, here are some examples:

  • Peter decided to name his only cousin, Marge, the contingent beneficiary of his insurance policy. If Greg and Hank, the primary beneficiaries, both die before Peter dies, Marge will inherit Peter’s assets.
  • Steven named his nieces Grace and Yolanda as the contingent beneficiaries. Grace and Yolanda will receive the benefits if Jamie, Joanne, and Jane (the primary beneficiaries) all die before Steven does. If all three daughters are still alive when Steven dies, Grace and Yolanda will receive nothing.

Primary vs Contingent Beneficiary

What, then, is the difference between primary and contingent beneficiary?

The only difference between the two is that the primary beneficiary is the person who will receive a specified share of your assets immediately upon your death, whereas the contingent beneficiary is the “back-up” or the person to receive the benefits when the primary beneficiary dies before the account holder.

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