Contingent Beneficiaries

Insurance policies provide a good opportunity for a person to leave some money to his heirs after death. Unlike other bequests, life insurance proceeds are paid directly to the named beneficiaries without going through probate. This means that the beneficiaries can receive the life insurance proceeds faster and tax free. In designating a life insurance beneficiary, the person purchasing the life insurance is often asked to designate both a primary and a secondary beneficiary.

The primary beneficiaries are the people who are designated to receive the value of the life insurance policy when the person dies. If the primary beneficiary is dead or cannot be located, the money that was supposed to go the beneficiary does not go into that beneficiary’s estate; it instead passes on to the secondary beneficiary if one is named.

A secondary beneficiary is a person who is designated to receive the proceeds of the life insurance policy only if the primary beneficiary cannot receive them. In addition to life insurance policies, primary and contingent beneficiaries can be named for other types of accounts.

A secondary beneficiary does not have any rights when it comes to the life insurance policy unless the primary beneficiary cannot receive the money. The secondary beneficiary is basically a backup plan. Under Florida law, life insurance companies are required to find a named beneficiary to pay out the money from a life insurance policy, or transfer the money to the state to conduct the search.

The secondary beneficiary is not a person who receives a smaller share of the life insurance policy than the primary beneficiary. If it is the intention of the insured or the person buying the policy that the proceeds be divided amongst multiple beneficiaries, then the person should name all the beneficiaries who are to split the proceeds as primary beneficiaries.

A secondary beneficiary does not necessarily take possession of the proceeds if the primary beneficiary is only temporarily limited in his ability to receive the proceeds. For example, if the primary beneficiary is a child, this does not mean that the child will be disqualified from receiving the proceeds of the policy in favor of a secondary beneficiary. The money would be paid out to the child’s legal guardian on behalf of the child. The better way to ensure a child gets the money from a life insurance policy is to name a trust as the primary beneficiary, with the child named as the beneficiary of the trust. A trust is a better way to ensure that the child’s money is well managed.

It is important to remember that the proceeds of a life insurance policy do not generally get passed through a will, and the designation of a beneficiary in the policy is what is considered in distributing those funds. Great care should be taken in designating both primary and secondary beneficiaries.

Let Us Assist You with Your Estate Planning Needs

For more information on designating primary and secondary beneficiaries to life insurance policies, bank accounts, and retirement accounts, contact our experienced estate planning attorneys at the Millhorn Elder Law Planning Group located in The Villages, Florida.

Resource:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0732/Sections/0732.703.html