Health Insurance Beneficiaries: Primary & Contingent

Instructor: LeRon Haire
The lesson will help readers distinguish between the primary and contingent beneficiaries of health insurance policies and health savings accounts, as well as provide reasons why each would both receive insurance proceeds.

Primary and Contingent Beneficiaries

Let's assume that your favorite flavor of ice cream is vanilla, followed by chocolate, and then strawberry. If your friend went to a local ice cream parlor to get you some ice cream but they were all out of vanilla, would they know the order of the next flavor to choose for you? The friend would only know beyond the shadow of a doubt to get you chocolate followed by strawberry if you told them this before. This is similar to the concept of primary and contingent beneficiaries.

A primary beneficiary is a person who has been selected in a will, trust or health insurance policy to be first in line to receive any designated benefits. In contrast, a contingent beneficiary is an individual that will receive any benefits left from a will, trust or health insurance policy only if the primary beneficiary has passed away. This particular characteristic happens to be the main factor that distinguishes these types of beneficiaries from one another.

Beneficiaries can receive benefits from a will, trust or health insurance policy after someone has passed away.
cemetery

Conditions for Primary and Contingents to Get Benefits

Now that you know what makes a primary beneficiary and a contingent beneficiary, you will need to know the conditions as to when they can each receive benefits designated from a will, trust, or health insurance policy. The conditions set forth for a primary beneficiary are rather simple: the primary beneficiary will be the first to have a chance at what has been left in a will or trust, hence the definition. However, contingent beneficiary benefits can sometimes be rather tricky, due to the fact that they typically only receive benefits upon the death of the primary beneficiary or if the primary beneficiary is unwilling or unable to accept the benefits.

One of those contingent beneficiary conditions allows children to get financial sums, but the condition is that the child must have first reached a certain age. Once this condition is met, the child can become a primary. Meanwhile, any remaining children listed as beneficiaries are still considered contingent until they reach the same specific age. There are also other contingent beneficiary conditions such as:

  • Need-based (distributions based on dire needs such as emergency or health-related issues)
  • Goal oriented (distributions for achievements such as graduations or weddings)
  • Disability

Let's take a look at an example of a situation in which a person designates a primary as well as a contingent beneficiary.

Let us assume that Bob was married to Jane and they have two adult daughters, Ann and Sue. Bob passed away and in his will, he left Jane as his primary beneficiary and listed Ann to be the contingent beneficiary. As the primary beneficiary, Jane will receive any and all benefits designated by Bob in his will before his passing. However, if something unfortunate were to happen and Jane passed away, that would mean the benefits left by Bob in his will would now go to Ann only, as she is the contingent beneficiary.

Primary and Contingent Beneficiary Percentages

There are times when a person may list more than one primary or more than one contingent beneficiary. When this happens, the designator must assign percentages to each party, which will indicate who will get how much. Here is an example:

Let's say that James wrote a will last week and he designated two primary beneficiaries, whom are Mary and Pam. James chose Mary to be listed to receive 60% of the designated benefits upon his death and Pam to receive the remaining 40%.

This means that upon James' death, Mary and Pam, who are the primary beneficiaries, will receive their designated portions. So if James left a total of $1,000 in health insurance claim benefits to be paid out, that means Mary would receive $600, while Pam would receive $400.

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