What is a Contingent Beneficiary on a 401k Life Insurance?
Whether you set up a financial account, apply for 401k life insurance, or execute a will, a lot of paperwork is required to set it all up in a way that saves you and your loved ones any additional stress.
A certainly morbid but still incredibly important detail that must be addressed for all of these is who receives them after their death. The more beneficiaries you plan to have, the more complex it can be.
Contingent Beneficiary on a 401k Life Insurance
Whether you set up everything yourself or with the help of a professional, you will have to deal with the concept of “contingent beneficiary on 401k life insurance” for your account, policy or will. Therefore, it is important to know what a contingent beneficiary is, how it differs depending on what you are doing, and even who can be named.
A contingent beneficiary is a secondary person or entity that elects to receive funds from their 401k, either later or instead of their primary beneficiary. This is particularly important in the event that your primary beneficiary dies before you die or cannot be located at the time of your death.
What is a contingent beneficiary?
A contingent beneficiary is the party you select to receive an asset (such as a life or property insurance payment you own) in case your first option to receive them is unable or you decide not to accept the asset. It is, in a way, a backup plan to try to make sure your assets keep going to a favorite party in case something goes wrong.
A contingent beneficiary is not only bound by whether or not the primary beneficiary can accept the asset first. With a document like a will, you can also put other conditions. For example, if your contingent beneficiary for your assets is your 18-year-old child, there may also be a condition that these assets be yours only after turning 21 or after graduating from college.
You can choose more than one contingent beneficiary if you wish, convenient in case, for example, a mother wants her three children to be contingent beneficiaries of her 401k life insurance policy. You only have to write down the percentage of the asset that each beneficiary would receive, simple enough if you want to divide it equally among your children, but a little more complicated if you want to give a higher percentage to one part than to another.
Life insurance is a common thing that requires both a primary beneficiary and a contingent beneficiary, but other financial accounts (a 401 (k) account, an individual retirement account (IRA), a living trust, etc.) may have beneficiaries contingents. Once you have named someone as a beneficiary, you should notify them so that you are not surprised if you end up in line to receive something.
What happens if you do not designate a beneficiary?
Accounts with beneficiary designations are often called “will substitutes.” Your selection of beneficiaries voids any instructions you may leave in your will for the same assets. You do not have to name primary or contingent beneficiaries. However, it will help you prevent these assets from ending up in your estate if something goes wrong, which could complicate it and cost your estate additional money.
The larger your estate, the more complicated and costly it will be to reach an agreement, which costs your beneficiaries money.
The Balance does not provide tax, investment or financial services or advice. The information is presented without taking into account the investment objectives, risk tolerance or financial circumstances of any specific investor and may not be suitable for all investors. Past performance is not indicative of future results. Investing carries risks, including the possible loss of capital.
Term Life Insurance 5, 10, 15, 20, 25, 30 Years
Life insurance is basically a contract between the policy holder and the insurance company that establishes that, as long as the premiums are paid as originally agreed and the insured person dies during the term of the coverage, the dollar amount coverage is paid to the designated beneficiary holder But what if the named beneficiary is no longer alive at the time of the policy holder’s death?
Common choices when you first get a term life insurance quote for the life of the policy are 5-year, 10-year, 15-year, 20-year, 25-year, and 30-year term. When the applicant chooses the amount of coverage and selects the term of the policy, the need for a contingent beneficiary does not seem important or likely to be necessary.
The applicant assumes that he or she will die before the designated beneficiary, who is undoubtedly the person most loved by the person who will soon be the holder of the policy.
Does a will override a beneficiary on a 401k?
No one wants to imagine having to endure witnessing the most valued person, and who is the reason to get a quote and life insurance policy in the first place, die first. But the policy will be in effect for up to 30 years and insurance is being purchased because death is not predictable. The same is true for the designated beneficiary.
Death is unpredictable for that person too. By definition, the contingent beneficiary is the person or persons named to receive the income in case the original 401k life insurance beneficiary is not alive.
This is also known as the secondary or tertiary beneficiary. It is common sense to select an alternate payee at the site of purchasing term life insurance, as there is no downside to doing so and eliminates the possibility of not having a designated payee simply due to poor planning.
- What is a Contingent Beneficiary on a 401k Life Insurance?