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Primary Beneficiary

What is a Primary Beneficiary?

A primary beneficiary is the first in line to receive a life insurance policy’s death benefit when the insured passes away. A policy owner can name multiple primary beneficiaries provided that they specify how the death benefit gets distributed between them.

The basics of beneficiaries

When people buy life insurance, they need to decide who will receive the policy benefit when the person whose life it insures dies. The person, people, or entity/entities who get that money are called beneficiaries.

Someone might buy life insurance on themselves and name their spouse as the beneficiary, for example. That way, when they die, their spouse gets money to cover their funeral expenses and ongoing financial responsibilities that the couple had shared, like a mortgage payment.

But you can also buy life insurance on someone else and name yourself as the beneficiary (provided you have an insurable interest in the person). You might buy life insurance on your business partner and name yourself as the policy’s beneficiary, for example, so you could get money to cover operating expenses or to fund a buy-sell agreement after they’re gone.

Primary, secondary, and tertiary beneficiaries

The above cases both assume that the beneficiary the policy owner named can be found and is alive when the insured dies. But what happens if the spouse or business partner has already passed away?

If you bought life insurance on yourself and died without naming a next-in-line to receive the policy’s death benefit, the money goes into your estate. At that point, the probate court will have to distribute it, which takes time and can come with fees. Ultimately, it could leave the people financially reliant on you strapped for cash in an already challenging season.

To avoid this, life insurance providers allow policy owners to name primary, secondary (also called contingent), and even tertiary beneficiaries.

The primary beneficiaries are the first in line to receive the policy benefit. But if they die before the insured, cannot be located, or refuse the money, the benefit then goes to the secondary beneficiary. If they’re unable to accept the death benefit, it goes to the tertiary beneficiary.

Many people only name a primary beneficiary or beneficiaries to their policy. But naming contingent beneficiaries ensures that the money gets distributed according to their wishes without needing to involve a probate court.

People might, for example, name a spouse as a primary beneficiary and their children as contingent beneficiaries. That way, should they and their spouse die at the same time, it’s clear that the life insurance benefit should get distributed to their kids.

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