What is a Contingent Owner?
In life insurance, a contingent owner is the individual who gets control over a policy if the primary owner dies. This applies when life insurance is purchased by someone other than the insured.
Buying life insurance on other people
While most people buy life insurance on themselves to protect specific people or entities (like their business) from financial burden when they pass away, you may also have the option to purchase coverage on other people. If you have an insurable interest in someone, meaning your financial outcomes are tied to theirs, you can choose to buy life insurance on that individual. You might buy life insurance on your spouse or your business partner, for example.
In those instances, you will be designated as the primary policy owner. But what happens if you die before the person on whom you purchased coverage?
To clarify that exact situation, you might choose to name a contingent owner.
When contingent owners come into play
Contingent owners get control of a life insurance policy when the primary owner dies before the insured. This can prevent people from having to spend time in probate court.
Let’s say your business partner purchased life insurance on you. If they left the contingent owner line blank and pass away, you won’t have any say over what happens to the policy, despite the fact that you’re the insured. You’ll have to go to probate court and argue that you should gain control of the coverage, which will cost you both time and money. If someone else contests your claim to the coverage, you could lose the case.
Ultimately, naming a contingent owner may seem like a formality that requires unnecessary extra paperwork, but it can save the people you want to protect from headache and expense.