What Does Tertiary Beneficiary Mean?

By Karyn Maier

The term “tertiary” is from the Latin word “tertiarius,” which translates to “of a third.” The word is used to refer to a third order, level, stage, rank or designation, as in “tertiary education," which follows primary and secondary levels of education. In the insurance industry, a tertiary beneficiary is a person or entity entitled to receive benefits in the event the first and second beneficiaries cannot.

The term “tertiary” is from the Latin word “tertiarius,” which translates to “of a third.” The word is used to refer to a third order, level, stage, rank or designation, as in “tertiary education," which follows primary and secondary levels of education. In the insurance industry, a tertiary beneficiary is a person or entity entitled to receive benefits in the event the first and second beneficiaries cannot.

Beneficiary Defined

A beneficiary is a person or entity designated to receive assets upon another person's death. Specific beneficiaries are named in a last will and testament or in a life insurance policy; they typically include a person’s spouse, children or other relatives. Some people designate charities, trusts or other legal entities as beneficiaries instead of family members, either by choice or because none exist. A person may even choose to leave everything to benefit the care of a beloved pet. However, some types of financial accounts and insurance policies may automatically elect a surviving next of kin as the default beneficiary if no other beneficiaries were designated when the account was created.

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Tertiary Beneficiary

As the name suggests, a tertiary beneficiary is third in line in terms of the distribution of assets or the payout of life insurance benefits. However, being named as a tertiary beneficiary doesn’t mean that you can expect to receive one-third of the contents of an estate or insurance policy benefits after the first and secondary beneficiaries get their shares. Instead, it means that you will only receive property or a payout by default if the first and second beneficiaries have died or are no longer eligible or qualified as beneficiaries. For example, if you named your spouse as primary beneficiary and then get a divorce, your spouse automatically loses her designation as your primary beneficiary.

Tertiary Order

To illustrate how a tertiary beneficiary fits into a benefits payout, assume that your last will and testament or an insurance policy designates your spouse, child and grandchild as primary, secondary and tertiary beneficiaries, in that order. If, at the time of your death, your spouse is living, then he or she will receive 100 percent of the assets or benefits. If your spouse predeceases you, then your child will receive 100 percent. If your grandchild is the only surviving beneficiary at the time of your death, then he or she will receive the entire amount. However, if all three are living at the time of your death, only the primary beneficiary, your spouse in this scenario, will receive any benefits.

Considerations

It’s a good idea to review your last will and testament and insurance policies periodically and update them accordingly. This is particularly important if your circumstances change, such as the death of a spouse or a divorce. Consult your attorney, insurance agent or financial advisor for guidance.

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What Is a Surviving Primary Beneficiary?

References

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Kansas Law on Divorce & Beneficiary Designation

Sharing of property is fundamental to most marriages. In Kansas, when a couple decides to get divorced, assets acquired before or during the marriage must be divided regardless of how title is held. This includes benefits to be paid at death, such as life insurance policies and trust funds. While divorce automatically revokes the inheritance status of a former spouse in a will, all other beneficiary designations must be changed through the divorce decree and then forwarded to the company that issued the policy.

What Is a Secondary Beneficiary?

When setting up a will or trust, you designate a person, business or other legal entity to receive the proceeds from the estate or trust: The recipient is known as a beneficiary. A will or trust may also name secondary beneficiaries. These recipients receive proceeds from the estate or trust if a condition specified in the will or trust agreement occurs.

How to Name a Charity as a Beneficiary of Life Insurance Under a Qualified Plan

Until recent years, the goal when planning for disposition of a qualified insurance policy upon death was to remove the proceeds of the policy from the decedent’s taxable estate. To accomplish this, an irrevocable life insurance trust was created by the policy owner. As of 2012, the estate tax exclusion amount is considerably higher, minimizing the need for complex tax planning by most people. This allows a policyholder to instead name a charitable organization as the beneficiary of a qualified life insurance policy.

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