What is a primary beneficiary?

Time for a little word play. What does beneficiary mean exactly? The word beneficiary has its roots in the Latin benefactum, meaning good deed. And that’s a good way to think of naming someone, or someones, or something, as a beneficiary on your term life insurance policy. Simply put, a life insurance beneficiary is the person who will receive a policy payout (called a death benefit) if you were to die with coverage in place. It can be a person, multiple persons, a trust, or even an organization — or some combination depending on your needs.

But what distinguishes a primary beneficiary from all others (like a secondary beneficiary or contingent beneficiary)? And how do you choose that primary beneficiary, anyway? These are important questions — arguably the most important questions you’ll face when buying a life insurance policy. After all, why are you buying a policy in the first place? To help financially protect those you love in case you’re not around to do so yourself. (That’s that good deed we were talking about earlier.)

With all that in mind, here’s what to consider, and what you need to know, when choosing who to name as your primary beneficiary on your life insurance policy.

What is a beneficiary?

Again, a life insurance beneficiary is a person who will receive the life insurance payout from a policy if you were to die. The proceeds from the life insurance payout, known as a death benefit, can be used to help pay for your beneficiary’s financial needs, both those that come with death (funeral arrangements, burial expenses) and those that we have in daily life (mortgage payments, child care). ​​

A policy owner will choose the designated beneficiary for their life insurance benefit. Because you might not want to put all your financial eggs in one person’s basket, you can name two (or more) people as beneficiaries, outlining the percentage of the policy payout each would be given by the life insurance company.

What is a primary beneficiary, anyway?

A primary beneficiary is a designated individual, chosen by the policyholder, who would receive the proceeds of the policy if he or she were to die. When selecting a primary beneficiary, you can name a person or persons or even a revocable trust (or living trust) or other legal entity. Most importantly, the primary beneficiary is the “first in line” to receive the death benefit.

For some, designating multiple beneficiaries — say, a spouse or partner and a parent — may make sense, especially if both could face financial hardship. For others, one primary life insurance beneficiary, with a contingent beneficiary named, makes the most sense. The latter is what we commonly see at Haven Life, where most customers name their partner as the sole primary beneficiary.

Keep in mind that your primary beneficiary must be legally competent to accept the proceeds. This raises the question of whether it is possible to name minors as beneficiaries. The short answer is yes, as long as certain steps are taken — specifically, creating a trust and naming a guardian who will oversee that trust to ensure your estate is executed in accordance with your wishes.

Whomever you choose, you’ll want to make sure you notify your beneficiary (or beneficiaries) that you’ve designated them. This will ensure they know your wishes, and can act accordingly in the event something happens to you. Also, keep in mind that, with most life insurance policies, you can change your beneficiary designation at any time.

What is a contingent beneficiary, and why would I need one?

A contingent beneficiary is who would receive the death benefit if something happened to the primary beneficiary. After all, life is full of unexpected outcomes. Selecting a contingent beneficiary is a prudent way to protect yourself and your loved ones from a number of “what-if scenarios,” such as your primary beneficiary not being alive at the time a claim is made. It’s common for policyholders to name their spouse or partner as the primary beneficiary and then their children or their children’s guardian as the contingent, for example. That way, if anything happened to both parents, the proceeds would go to the children or their guardian to manage.

Also, you know how we’re always saying we want to make life insurance less hard here at Haven Life? Listing a contingent beneficiary will make life less hard for that person. Basically, if something happens to you and your primary beneficiary, your death benefit would be paid to your estate if you hadn’t named a contingent beneficiary. It might then be subject to distribution through the probate court which will cause a delay in disbursing money — a complicated situation for your loved ones during an already stressful time. (Note: If you’ve already set up a living trust and plan to name it as the primary life insurance beneficiary this might not be an issue.)

And FYI: You can have more than one primary beneficiary and more than one contingent beneficiary; you simply need to designate what percentage of your life insurance proceeds you want to allocate to each of your primary beneficiaries. Haven Life, for example, permits up to 10 primary beneficiaries and 10 contingent beneficiaries. And again, insurance companies will let you change your beneficiary designation at any time.

Additional “just in case” scenarios where a contingent beneficiary would be needed:

• Primary beneficiary cannot be found
• Primary beneficiary refuses to accept the proceeds
• Primary beneficiary has predeceased the policyholder

How do I decide who to name my primary beneficiary?

Naming beneficiaries is an important part of life insurance planning. Some may choose a family member like a parent, sibling, or spouse. For most people, they are buying a life insurance policy because they have someone in their mind who they want to financially protect – so often it’s a simple choice of who to name as a designated beneficiary. At Haven Life, we frequently see individuals name their significant other as the primary beneficiary, but your situation may be different. Alternative choices could be elderly relatives who you financially support, friends who are like family or even charitable organizations that have had an impact on your life.

What if I need to change my primary beneficiary designation?

It is important to review your beneficiary designations from time to time. This is especially true if you have a major life event such as marriage or divorce. Or perhaps in the unfortunate case that the person you have named as a primary beneficiary dies. If your life circumstances dictate a change in beneficiary designation, fear not. It is simple to change your beneficiary designation if needed. At Haven Life, this can be conveniently managed in your account center online.

Can I have more than one primary beneficiary?

You can have more than one primary beneficiary; you simply need to designate what percentage of your life insurance proceeds you want to allocate to each of your primary beneficiaries. Haven Life, for example, permits up to 10 primary beneficiaries and 10 contingent beneficiaries. No matter how many primary beneficiaries you have, the total percentage allocated must equal 100%. How you divide that 100% is up to you, the policyholder.

What if my primary beneficiary cannot be found?

If your primary beneficiary cannot be found when the time comes to receive a payout, the payout will go to your contingent beneficiary, if you have one. A contingent beneficiary steps in as the primary beneficiary if the primary beneficiary is no longer able to receive the benefit. Overall, this is why it’s important to not only name a primary beneficiary and contingent beneficiary, but to also review and update the beneficiary and his or her contact information periodically.

Protect your primary beneficiary with life insurance

Whether you choose to have multiple primary beneficiaries or just one, it’s important that your choice reflects who you’d want to receive the life insurance benefit. At the end of the day, life insurance helps us leave a financial legacy to our loved ones after we are gone. Properly selecting, naming and notifying a beneficiary is the best way to help ensure your loved ones will receive the death benefit in a time-sensitive manner, at a time when they’ll need that peace of mind most.