Tertiary Beneficiary Explained: The Third Layer of Security

Most of life is not like Ikea flatpack furniture. It does not come with an Allen wrench and clear (okay, semi-clear) instructions. Even things that should be clear, aren’t — like life insurance, for instance. 

The majority of prospective life insurance policyholders have heard of a primary beneficiary, and they may even know a thing or two about secondary beneficiaries. Most, however, have never heard of a tertiary beneficiary. Where’s the Allen wrench for that! 

Fortunately, we’ll break down the role of a tertiary beneficiary in this article, including how you can ensure you’ve named one for your life insurance.

The Role of a Tertiary Beneficiary

While the terms themselves may be unfamiliar, the good news is that the breakdown of life insurance beneficiaries is pretty logical. A beneficiary is the person or people who will receive a benefit from your life insurance policy when you die, and there are three tiers to the system:

• Primary Beneficiary: Often a spouse or close family member, this is the first person to receive some or all of the payout from your policy.
• Secondary Beneficiary: If the primary beneficiary has passed away or declined the benefits, this individual then becomes the recipient. Secondary beneficiaries are often the adult child or children of the policyholder. ‍
• Tertiary Beneficiary: This last class of beneficiary exists almost entirely for your peace of mind. Someone in this role would receive benefits if all your other beneficiaries refuse payout or are deceased.

Why Consider a Tertiary Beneficiary?

As the policyholder, you want to make sure your loved ones receive the benefits they’re due — which is where a tertiary beneficiary comes into play. We’ll break down some common issues that can lead to a tertiary benefit receiving your life insurance payout, including: 

• Designation problems
• Death
• Minor children 
• Taxes 

Designation issues come up way more often than you would think, since small mistakes can have big consequences. When you fill out your beneficiary form, you’ll want to pay attention and provide the correct information for the following key pieces of data:

• Your beneficiary’s full name (with the correct spelling!)
• Your beneficiary’s date of birth 
• Your beneficiary’s social security number

While errors don’t necessarily result in the outright denial of benefits, they can make things more complicated. And as ever, it is important to triple-check all information when filling out insurance forms. 

Unsurprisingly, the death of a beneficiary will preclude them from receiving benefits. If your primary beneficiary happens to be older (or even around your age!), you may want to elect a secondary and tertiary beneficiary. 

You may of course want your children to receive any benefits associated with your policy. While making your minor-aged children your beneficiaries is completely legal, getting them the cash benefit can be thorny. If you appoint your children’s aunt(s), uncle(s), or godparent(s) as a tertiary beneficiary, they could ensure that your kids are taken care of until they become adults.

The final consideration is taxation. Receiving benefits could push your beneficiary into a higher tax bracket, and that possibility might encourage them to decline whatever payment they were going to receive. We know it sounds silly, but taxes are a big deal when it comes to life insurance benefits — particularly if you’re on the older side and no longer earning an income. Any change to your circumstances could be unwanted.

Choosing Your Tertiary Beneficiary 

You can name basically anyone as your beneficiary, provided you check the terms and conditions of your policy. But generally speaking, a non-U.S. citizen, an incarcerated person, or, as mentioned above, even children can get your policy payouts. Pets, however, cannot. Sorry, Fido and Felix!  

That said, whether you’re selecting your primary, secondary, or tertiary beneficiary, there are a few things you should always consider, including:

• Relationship: Your beneficiary should be someone who you’re close with (like a spouse, parent, or other relative) or someone who you are responsible for in life (like a child or grandchild). 
• Financial Needs: Your spouse or children may achieve independent financial freedom in your lifetime. In those cases, consider relatives like siblings or close lifetime friends who may need support after your death.  
• Age: Many policyholders choose young beneficiaries who can use death benefits for significant life expenses. And as mentioned above, you’ll also want to consider the tax implications for the beneficiary, especially if the individual is older.

And you always, always need to name your beneficiary outright: Writing ‘my best friend’ just won’t cut it.

Managing and Updating Beneficiaries

If you already have a life insurance policy but haven’t named a tertiary beneficiary, don’t stress! It’s usually pretty simple to add and change beneficiary information. Here’s how it’s done:

• First: contact your insurance company or log onto their website
• Second: find your policy and request an addition or change. This is often known as an amendment form.
• Third: add the beneficiary’s correct information (see: the section above where we discuss the importance of getting that information right!)
• Fourth: confirm your changes

Remember that not every insurance provider uses the same lingo when talking about tertiary beneficiaries. Some might call this designation a ‘backup’ or ‘contingent’ beneficiary. You’ll be able to tell if the company is talking about the tertiary beneficiary because they will be third in line to receive benefits. 

Regardless of whether you elect a tertiary beneficiary, it is important to keep all beneficiary information up-to-date. If your policy requires their phone number or address, then make sure you update this if and when your beneficiary moves or changes their phone number.

Secure Your Tomorrow with Marble 

Primary beneficiaries, tertiary beneficiaries… it may sound complex, but Marble can help you keep everything straight. With Marble, you can compare policies and store all your documents in one easy-to-use digital wallet — all while earning rewards. Join today!