What is the difference between a primary beneficiary and a contingent beneficiary?

The distinction between a primary beneficiary and a contingent beneficiary lies in their roles regarding the distribution of benefits from a life insurance policy. The primary beneficiary is the individual or entity designated to receive the policy's death benefit when the insured passes away. In contrast, the contingent beneficiary is only entitled to receive the benefits if the primary beneficiary is unable to do so, typically due to their own death or unavailability at the time of the insured's passing.

This foundational understanding highlights why the first choice is the correct answer. The primary beneficiary is set to receive the benefit right away, while the contingent beneficiary's entitlement comes into play only if there is an issue with the primary beneficiary receiving those funds. Thus, knowing this hierarchy is essential when setting up beneficiaries in any insurance policy, as it directly affects who will receive the proceeds and under what circumstances. Understanding this structure aids in proper estate planning and ensures that funds are distributed according to the insured's wishes.