A designated beneficiary, also known as a heir, is a person named as a party on an issued life insurance policy. There are two types of designated beneficiaries: primary beneficiary and secondary beneficiary. A secondary beneficiary can also be referred to as a contingent beneficiary, but there is a slight distinction.
A primary beneficiary is the first person entitled to 100% of the death benefit. If the primary beneficiary dies before the insured, the secondary beneficiary will receive 100% of the death benefit. If the primary beneficiary and secondary beneficiary die before the insured, the death benefit will go to the estate of the insured and relatives of the insured will have to go to probate court. Probate court helps decide who is entitled to the assets and liabilities of the insured if there is or is not a legal will. More specifically, probate court determines who receives the death benefit of an insurance policy if all designated beneficiaries have died or if the life insurance policy was not assigned to any person or business. This entitled person is known as the executor of the estate.
A contingent beneficiary is also a person named as a party on an issued life insurance policy. Instead, each contingent beneficiary named will receive a percentage of the death benefit as allocated by the policyowner when the insured dies. If a contingent beneficiary dies, their allocation of the death benefit will go to the estate of the insured and probate court will decide who is entitled to receive the funds.