What is a Beneficiary on Health Insurance?

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This lesson will teach readers how to distinguish between primary and contingent beneficiaries in health insurance policies and savings accounts. It also explains why they would each receive insurance proceeds.

Primary and contingent beneficiaries

Let’s say that vanilla is your favorite flavor, followed by chocolate and strawberry. What if your friend tried to buy you ice cream from a local icecream parlor but was out of vanilla? Would they know which flavor you should get? If you had told them before, the friend would not be able to tell you if they wanted strawberry and chocolate. This is similar to the concept primary and contingent beneficiaries.

primary beneficiary refers to a person that has been chosen in a will or trust to be the first to receive any specified benefits. A contingent beneficiary, on the other hand, is someone who will only receive any benefits from a will or trust that has been made. This is the primary characteristic that separates these types beneficiaries.

Conditions for Primary and Contingents to Receive Benefits

Once you have figured out what constitutes a primary beneficiary or contingent beneficiary, it is time to find out the conditions under which they can each be eligible for benefits from a trust, will, or insurance policy. It is very simple to define a primary beneficiary. The primary beneficiary will have the first chance to receive what has been left in trust or will. However, contingent beneficiary benefits are sometimes a bit tricky because they usually only get benefits upon death of the primary beneficiary, or if the primary beneficiary refuses or is unable to accept them.

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A contingent beneficiary condition allows children to receive financial sums. However, the condition requires that the child has reached a certain age. The child can then become a primary once this condition has been met. Until they reach the same age, all remaining beneficiaries are considered contingent. Other contingent beneficiary conditions exist, such as:

  • Need-based (distributions that are based on urgent or health-related needs)
  • Goal-oriented (distributions of achievements such as weddings or graduations).
  • Disability

Let’s look at an example where a person designsates both a primary and a contingent beneficiary.

Let’s assume Bob married Jane and had two adult daughters, Ann (and Sue). Bob died and left Jane as the primary beneficiary. Ann was named contingent beneficiary. Jane will be the primary beneficiary and will receive all benefits that Bob has made available to her in his will. Ann will receive the benefits of Bob’s will if Jane were to die. Ann is the contingent beneficiary.