What is a contingent beneficiary?

A contingent beneficiary refers to an individual designated to receive the death benefit of a life insurance policy if the primary beneficiary is unable to do so. This situation may arise if the primary beneficiary has passed away before the insured or is otherwise unqualified to receive the benefit due to legal or other reasons. By establishing a contingent beneficiary, the policyholder ensures that there is a secondary recipient who can claim the benefits, thereby preventing the proceeds from escheating to the state or being tied up in probate.

The other options do not accurately define a contingent beneficiary. The second option describes an inheritance scenario related to policy cancellation but does not pertain to beneficiaries of a life insurance policy. The third option is specific to health insurance and does not relate to life insurance beneficiaries. The fourth option incorrectly describes a primary beneficiary, who is the first in line to receive the benefits upon the death of the insured. A contingent beneficiary serves an entirely different function in the policy structure.