Contingent Beneficiary Meaning and When They Inherit in Ontario

You may have seen the words contingent beneficiary on an insurance form, or been told you are one after a death. The term can sound technical, but the idea is simple: it is the back-up choice.

This article explains what a contingent beneficiary is, the events that make them entitled to be paid, and what happens when no one named can receive the money. It focuses on life insurance in Ontario.

What a contingent beneficiary is

A primary beneficiary is the person you name first to receive the insurance money. A contingent beneficiary, sometimes called a secondary beneficiary, is the person named to receive that share if the primary beneficiary cannot. Their right depends on something else happening first, which is why it is called contingent.

Under the Insurance Act, the person insured can name themselves, their estate or a beneficiary to receive the money, and can do so in the contract or by a separate declaration. When a contingent beneficiary is named in the policy, that is a disposition of the share that the policy itself provides.

The events that trigger a contingent beneficiary's entitlement

The most common trigger is that the primary beneficiary dies before the person insured. In that case, a contingent beneficiary named in the policy or declaration takes the share the policy directs.

• The primary beneficiary dies before the insured, and the policy or declaration names who takes that share. The named contingent beneficiary takes it.
• The primary beneficiary dies first and nothing says who takes the share. The share goes to the surviving beneficiary, or is shared equally if several survive.
• No beneficiary survives. The money goes to the insured or the insured's personal representative, which means the estate.

A contingent beneficiary does not step in just because they would prefer to. The trigger has to actually occur, and the wording of the designation matters.

When the money goes to the estate instead

Naming the insured's heirs, next of kin or estate counts as naming the personal representative, so the money is paid to the estate. Once insurance money is payable to the personal representative, it becomes part of the estate and is dealt with under the will or intestacy rules, together with estate debts.

The creditor shield for insurance money applies where a beneficiary is designated. It does not apply the same way once the money falls into the estate. That is one reason a well-kept contingent designation can matter.

Special situations to watch for

• Revocable designations: the insured may generally change or revoke a beneficiary designation by a declaration, so a contingent beneficiary has no guaranteed place.
• Irrevocable designations: while an irrevocably named beneficiary is living, the insured cannot change the designation without that person's consent.
• Designations in a will: a designation in a will has no effect against a designation made later than the will. If the will is revoked, the designation in it is also revoked.
• Insurer restrictions: an insurer may restrict or exclude in the contract the insured's right to name beneficiaries.
• A trustee for a beneficiary: the insured may appoint a trustee for a beneficiary, in the contract or by a declaration.

If a contingent beneficiary is a child, the rules change. If no one can give a valid discharge for a minor's insurance money, the insurer must pay it into court to the minor's credit. The insurer may instead pay a guardian of property appointed under the Children's Law Reform Act. If no trustee is named, a child's share over $35,000 is paid into court and managed by the Accountant of the Superior Court of Justice until the child turns 18. A smaller share can be paid to the parent the child lives with or the person with lawful custody, who holds it as guardian of property until the child turns 18.

What to do next

• Find the policy and any declarations, and read who is named as primary and contingent.
• Check whether the designation is revocable or irrevocable.
• Confirm whether the primary beneficiary is living and obtain the documents the insurer asks for.
• If a minor is involved, ask the insurer how it will pay and consider whether a trustee was named.
• Speak with a lawyer if the wording is unclear, a will conflicts with the policy, or more than one person claims the money.

The insurer's own forms and wording decide many practical details, so a lawyer can help you read them against the Insurance Act.

Frequently asked questions