Naming a beneficiary for life insurance and retirement accounts is a crucial step that spells out who will receive benefits or the balance of your accounts if you pass away.

But what happens if your beneficiary passes away before you, or around the same time? What if they can't take over the account for other reasons? In situations where the primary beneficiary can't step in, it's important to have a contingent beneficiary named to your policy or account.

What Is a Contingent Beneficiary?

A contingent beneficiary is an alternate beneficiary that you name on your insurance policy, will, trust or retirement accounts. This person receives benefits in the event that your primary beneficiary cannot or will not receive the benefits from your accounts.

Many people name a spouse, relative or close friend as a primary beneficiary and then designate a secondary beneficiary who will be next in line behind the primary to receive benefits.

Why Is It Important to Name a Contingent Beneficiary?

It's a good idea to have a back-up beneficiary in case the primary beneficiary isn't able to accept the benefits named to them. This could occur if the primary beneficiary dies, or if they can't accept the benefits or account balance for legal reasons.

Designating a contingent beneficiary can also help prevent difficulties for your loved ones. If you don't name a contingent beneficiary for life insurance, your assets could get stuck in lengthy probate proceedings if your primary beneficiary passes away or isn't able to accept benefits. Probate is a process in which the court manages distribution of your assets after you die.

As you work through the estate planning process, naming multiple beneficiaries on your accounts is one of the best ways to prevent probate down the road.

Whom Should I Name to the Role?

As with your primary beneficiary, you can generally name any adult as a contingent beneficiary, but you cannot name a minor to the role. You can also name an institution, such as a favorite charity, as a contingent beneficiary. This is a great way to continue your legacy by supporting an organization that's close to your heart.

Plan Ahead by Designating Multiple Beneficiaries

If you've already named the primary beneficiaries for your life insurance policy and financial accounts, that's a great start, but don't forget to name additional people or organizations as beneficiaries. That way, if your primary beneficiary isn't able to accept the benefits, your assets will still be distributed according to your wishes.