What’s the Difference Between A Primary and Contingent Beneficiary?

We most commonly think about beneficiaries in life insurance policies. However, if you have a 401(k), IRA or a bank account, you may be asked to provide a beneficiary.

Beneficiaries are people or entities that you designate that will receive your assets upon your ultimate demise. You know…when you croak.

Most of us will fill in our loved ones as our beneficiaries and never think a second thought about it. But when you look at the application it lists primary and contingent beneficiaries. What’s the difference?

Primary beneficiary
Your primary beneficiary is who will receive your asset immediately upon your death. They are the people you most want your money to go to after your death. Some of my clients have designated more than one primary beneficiary. If you have more than one, say two siblings, they will divide the asset fifty-fifty. You can give a larger percentage to one primary beneficiary over another.

Contingent beneficiary
A contingent beneficiary is who will receive your money in case the primary beneficiary has died before you. Obviously, if they are dead, they aren’t getting your money! Often clients will list a spouse as a primary beneficiary and then their children as contingent beneficiaries. I’ll give you an example. Let’s say both parents die unexpectedly in a car accident. The husband’s pre-deceases the wife. Legally, the money passes from husband to wife, then the wife passes a few minutes later, and the children receive the assets.

Go through your financial assets and property and think about naming a contingent beneficiary. It’s a smart move to make sure that the people you love and the causes you care about receive the money you donated. Make sure you have a beneficiary on all your assets. Why? Property with named beneficiaries will avoid probate. Allowing the money to pass quicker and without added expense.

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