WHAT IS TERTIARY BENEFICIARY: Definition, Designation, Comparisons, Insurance

What is a Tertiary Beneficiary
Image Credit: Investopedia

When people set up a retirement account or life insurance policy, they usually mention the primary beneficiary in the event of their death. There’s a need for the designation of a tertiary beneficiary too. The tertiary beneficiary is designated to receive benefits of life insurance or cash value in the event of the demise or absence of both the primary and the secondary or contingent beneficiary. Sometimes, a tertiary beneficiary may or may not be specified by the insured in their will or trust. The legal department attempts to reach the immediate beneficiary after contacting the primary and secondary beneficiaries without disclosing the recipient’s identity and dividing the funds appropriately.

What is Tertiary Beneficiary?

A tertiary beneficiary is someone who receives the benefits of one’s life insurance or pension plan if the primary beneficiary is deceased. More elaborately, it’s a person designated specifically to receive the amount payable under a policy after the death of the policyholder when both the primary beneficiary and the secondary beneficiary are likewise deceased is known as a tertiary beneficiary in the context of life insurance.

How Does a Tertiary Beneficiary Work?

Being a tertiary beneficiary does not entitle someone to a third of the life insurance benefits. Policyholders designate someone to receive the claims under their policy. However, they also mention a tertiary beneficiary if the primary and secondary beneficiaries are both deceased. Sometimes, they do not. However, legal practitioners look for the next of kin after the death of the original benefactor. If the primary or secondary beneficiaries are still living, the tertiary beneficiary’s entitlement is not activated.

Tertiary Beneficiary Designation

One of the most important decisions you will make while building your financial plan is designating beneficiaries. Even if a tertiary beneficiary isn’t part of the plan, the designation is very much necessary. Especially if you have to do them for the various assets you own. You may be certain that the institution you partner with will immediately deliver the proceeds to the intended recipients. They do this by simply naming a beneficiary or beneficiaries. By avoiding your estate and delivering the funds directly to your beneficiary, you can save time and money. Beneficiaries can fall into one of three categories: contingent, revocable, or irrevocable.

#1. Irrevocable Beneficiaries

Irrevocable means that the beneficiary cannot be changed unless they choose to do so. When it comes to a beneficiary, there’s a need for carefulness and thoughtfulness. This is because it is irrevocable. Before selecting an irrevocable beneficiary, make sure to go over all your options with your financial advisor. The insurance company’s headquarters typically requires you to sign and submit documents confirming that you are aware of the implications of an irrevocable beneficiary.

#2. Revocable Beneficiary

The beneficiary designation that we are most familiar with is the Revocable Beneficiary. You can name a person, a group of people, or an organization as the beneficiary on your contract with revocable beneficiaries, but you can change that designation at any time. There is a form. provided by each institution that you can use to designate or change your beneficiary. These forms must be completed and signed for each modification you make. Remember that a divorce does not cause you to change your will or the beneficiary listed on your products. Therefore, it’s imperative that you never miss an appointment.

#3. Primary and Contingent Beneficiaries

There is no limit to the number of beneficiaries you can name as long as you abide by the policy’s guidelines. The person who receives the proceeds first is the primary beneficiary. As secondary or contingent beneficiaries, only those who survive both you and the major beneficiary are entitled to the proceeds. It’s important to name a contingent beneficiary because if you and your primary beneficiary pass away at the same time, the beneficiary will be deemed to have died first under the Uniform Simultaneous Death Act. The proceeds will not go to your estate if a contingent beneficiary is named.

How May a Beneficiary Be Chosen or Changed?

When you get life insurance, you must specify your beneficiaries on the application. You can modify your beneficiaries by filling out a beneficiary designation form provided by the insurer. Unless one or more of the beneficiaries are irrevocable, you only need to list the beneficiaries’ names, sign the document, and add a date. Any prior designations will be immediately canceled by indicating this on the change-of-beneficiary form. Make sure to check and alter your beneficiary designations whenever significant life events occur. Significant life events include divorce, remarriage, and the birth of children.

Don’t make the mistake of thinking that changing your will’s beneficiary is a possibility. Even if you change the beneficiary of your life insurance policy in your will, the beneficiary designation on your policy still holds true. If you want to change the beneficiary of your life insurance policy, you must sign a change-of-beneficiary form. Use willpower sparingly to complete this.

Other things to Consider When Designating Beneficiaries

If you lose your capacity, you are not permitted to name a beneficiary or change one. And a court of law is the only entity that can declare you incapable. This exam, which asks whether you can understand what you are doing, is similar to the one that must be passed before creating a will or any other kind of legal document.

If a guardian is not also mentioned in the will, or if a trust is employed, a minor should not be included as a beneficiary. If you fail to name a guardian or set up a trust and a minor is named as a beneficiary, the probate court will act on your behalf. It is feasible to set up a minor’s custodial account to receive the child’s share of the death benefits after the insured individual passes away in states that have adopted the Uniform Transfers to Minors Act.

You might be unable to change beneficiaries if there are limits in a divorce judgment or settlement agreement. Even though the beneficiary is irrevocable, in some cases, divorce allows the policy owner to change it. In other circumstances, the policy owner can be prohibited from changing the beneficiary at all or obliged to designate a divorced spouse or children as irrevocable beneficiaries.

Contingent vs Tertiary Beneficiary

Contingent

The contingent beneficiary is next in line to receive the insurance death benefit. The life insurance company will pay the death benefit in the absence of a primary beneficiary, such as when the insured and beneficiary die simultaneously.

Tertiary

The tertiary approaches third order. The tertiary beneficiary is the next in line to receive the insurance death benefit. Similar to the contingent beneficiary, in order for the tertiary beneficiary to receive the death benefit, there must be neither a primary beneficiary nor a contingent beneficiary. It’s unusual for a term life insurance policy to name a tertiary beneficiary. In fact, the area listing tertiary beneficiaries is frequently missing from life insurance application forms.

A Secondary or Tertiary Beneficiary is Chosen in What Way?

You might wish to have a backup plan in place when you set up your policy in the event that the primary beneficiary is unable to accept the inheritance you leave them. This might take place if a beneficiary:

  • Rejects the inheritance promise.
  • At the time of the policyholder’s passing, he was deceased.
  • Is unable to properly accept the payment.
  • Despite reasonable efforts, cannot be located.

A primary beneficiary is your principal beneficiary’s backup, and a secondary beneficiary is your principal beneficiary’s backup. Even though adding a secondary or tertiary beneficiary would not affect the primary beneficiary’s inheritance, it can help ensure that the insurance policy’s death benefit reaches the person you specify.

Alternatives to Your Options

Not always naming a secondary or tertiary beneficiary is the best or only approach to ensure that dear ones or deserving causes receive what you intend to leave behind. Some people address these difficulties by designating the major beneficiary of their estate, a living trust, or an irrevocable life insurance trust in their will or trust agreement (ILIT).

By naming a trust as the beneficiary of your life insurance policy, you can provide your heirs the full value of the policy proceeds while also easing your inheritance tax concerns. The paperwork can indicate the order of inheritance (primary, secondary, tertiary, etc.) and ensure that the money is divided in line with this order and any other criteria you specify if it is correctly written up with legal and financial professionals.

What is the Difference Between Contingent and Tertiary Beneficiaries?

The lack of both a primary and a contingent beneficiary is necessary for the tertiary beneficiary to receive the death benefit, just like with the contingent beneficiary.

What is a Tertiary Beneficiary in Life Insurance?

A tertiary beneficiary is a person or entity that receives a policy’s death benefit after the insured has passed away. They will only be paid out if the principal and contingent beneficiaries have passed away, are undetected, or object to being paid out. When naming beneficiaries for a life insurance policy, you are allowed to specify more than one individual or company to be the recipient of policy benefits. As an illustration, you might want to name particular kids as beneficiaries. You can even specify how you want the revenue to be split by specifying various percentages. So, if there are two beneficiaries, you might decide on a 60/40 split or anything other.

Selecting Different Beneficiary Levels

The following are the different levels of beneficiaries and how they relates to benefits claims

  • Primary Beneficiary: When you pass away, the death benefit from your life insurance policy will be paid to the person or entity listed as the primary beneficiary first. Remember that your insurance coverage allows you to name many primary beneficiaries.
  • Secondary Beneficiary: The secondary beneficiary, also known as the contingency beneficiary, would be the next in line to receive the proceeds of your insurance policy in the event that the primary beneficiary is unable to do so.
  • Tertiary Beneficiary: To name just a few (should you wish to choose one). A tertiary beneficiary will receive the life insurance benefits if neither the primary beneficiary nor the secondary beneficiary is able to receive them.

What Are the 3 Types of Beneficiaries?

There are three different categories of beneficiaries: contingent, revocable, and irrevocable.

Are There Different Types of Beneficiaries?

Beneficiaries come in different forms, including beneficiary types: primary, contingent,

Conclusion

The tertiary beneficiary becomes effective only when the primary and secondary beneficiaries are no longer living to receive the benefits. Even if a policyholder didn’t mention a tertiary beneficiary, a legal practitioner will find one if the need arises.

Tertiary Beneficiary FAQs

Can a husband exclude his wife from his will?

Disinheriting a spouse is possible. As stated above, a spouse can and likely will be disinherited if they sign a legal or contractual agreement to that effect. If they are uncooperative, you’ll need to look elsewhere for solutions.

Who inherits when there is no will?

When you leave behind a spouse or civil partner but no offspring, they will inherit everything. If you have a husband or civil partner & children, your spouse or civil partner will receive two-thirds of your inheritance. Whereas, your children will split the remaining one-third equally.

  1. CONTINGENT IN REAL ESTATE: Difference Between Pending and Contingent in Real Estate
  2. Irrevocable Beneficiary: A Definitive Guide

References

  1. https://www.protective.com
  2. https://www.centerforasecureretirement.com
  3. https://www.centerforasecureretirement.com
  4. https://www.broadridgeadvisor.com
  5. https://unremot.com
0 Shares:
Leave a Reply

Your email address will not be published.

You May Also Like